Wait for a dip to buy Advanced Micro Devices stock

We believe there is not much to fear in AMD stock given its overall Strong operating performance and financial condition. But given its Very High valuation, the stock appears Relatively Expensive. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: Advanced Micro Devices (AMD) is a $279 Bil market cap company that produces x86 microprocessors, GPUs, chipsets, and development services across computing, graphics, enterprise, embedded, and semi-custom segments.

[1] Valuation Looks Very High

This table highlights how AMD is valued vs broader market. For more details see: AMD Valuation Ratios

[2] Growth Is Very Strong

• Advanced Micro Devices has seen its top line grow at an average rate of 14.3% over the last 3 years
• Its revenues have grown 22% from $23 Bil to $28 Bil in the last 12 months
• Also, its quarterly revenues grew 35.9% to $7.4 Bil in the most recent quarter from $5.5 Bil a year ago.

This table highlights how AMD is growing vs broader market. For more details see: AMD Revenue Comparison

[3] Profitability Appears Moderate

• AMD last 12 month operating income was $2.9 Bil representing operating margin of 10.3%
• With cash flow margin of 12.5%, it generated nearly $3.5 Bil in operating cash flow over this period
• For the same period, AMD generated nearly $2.2 Bil in net income, suggesting net margin of about 8.0%

This table highlights how AMD profitability vs broader market. For more details see: AMD Operating Income Comparison

[4] Financial Stability Looks Very Strong

• AMD Debt was $4.7 Bil at the end of the most recent quarter, while its current Market Cap is $279 Bil. This implies Debt-to-Equity Ratio of 1.7%
• AMD Cash (including cash equivalents) makes up $7.3 Bil of $72 Bil in total Assets. This yields a Cash-to-Assets Ratio of 10.2%

[4] Downturn Resilience Is Weak

AMD has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• AMD stock fell 65.4% from a high of $161.91 on 29 November 2021 to $55.94 on 14 October 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 18 January 2024
• Since then, the stock increased to a high of $211.38 on 7 March 2024 , and currently trades at $172.28

 
2020 Covid Pandemic

• AMD stock fell 34.3% from a high of $58.90 on 19 February 2020 to $38.71 on 16 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 22 July 2020

 
2008 Global Financial Crisis

• AMD stock fell 91.2% from a high of $20.35 on 1 January 2007 to $1.80 on 25 November 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 21 August 2018

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read AMD Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

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