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AMD: Take The Rescue Boat Already

Advanced Micro Devices is a semiconductor company that has seen success in capturing market share from Intel and Nvidia.The current stock price of AMD is unreasonably high, given unrealistic growth ex

AMD: Take The Rescue Boat Already

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{"i18n":{"language":"en_US"},"data":{"magic":2,"id":273837718921512,"tweetId":"273837718921512","gmtCreate":1707892863283,"gmtModify":1707892867475,"author":{"id":3583566101291811,"authorId":3583566101291811,"authorIdStr":"3583566101291811","name":"areetis","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":17,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"html":"<html><head></head><body>Author want to push down price and then buy low lor.</body></html>","htmlText":"<html><head></head><body>Author want to push down price and then buy low lor.</body></html>","text":"Author want to push down price and then buy low lor.","highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://ttm.financial/post/273837718921512","repostId":2411108323,"repostType":4,"repost":{"id":"2411108323","pubTimestamp":1707888619,"share":"https://www.laohu8.com/m/news/2411108323?lang=&edition=full","pubTime":"2024-02-14 13:30","market":"us","language":"en","title":"AMD: Take The Rescue Boat Already","url":"https://stock-news.laohu8.com/highlight/detail?id=2411108323","media":"seekingalpha","summary":"Advanced Micro Devices is a semiconductor company that has seen success in capturing market share from Intel and Nvidia.The current stock price of AMD is unreasonably high, given unrealistic growth ex","content":"<html><head></head><body><ul style=\"\"><li>Advanced Micro Devices is a semiconductor company that has seen success in capturing market share from Intel and Nvidia.</li><li>The current stock price of AMD is unreasonably high, given unrealistic growth expectations and the situation with share repurchases, making it a sell for long-term investors.</li><li>The history of AMD&#39;s stock price and market cap shows the risk of overpaying for the stock and the potential for limited further growth.</li></ul><img src=\"https://static.tigerbbs.com/aabf8f669b54b622ae2fb759d2b2316b\" tg-width=\"509\" tg-height=\"339\"/>Advanced Micro Devices (NASDAQ:AMD) is another, alongside Nvidia (NVDA), it&#39;s known for successfully capturing market share from Intel (INTC) and achieving enormous returns as a result. While this mostly rode the rise of the video game industry, advances in AI in 2023 have opened further doors for the company and the semi industry broadly.A recent rally has brought AMD to an all-time high over $170, a range at which it has traded flat for the last few weeks. For folks looking to &#34;survive the flood,&#34; I&#39;m going to explain why this price is unreasonably rich for this company, given the unrealistic growth expectations, previous peaks, and the situation with share repurchases, making the stock a SELL for long-term investors.<h2 id=\"id_556213205\">Reverse-Engineering the Valuation</h2>The first thing is to unpack is what&#39;s reflected in the current valuation of AMD. With a market cap around $278 billion, it&#39;s one of the most expensive companies out there, but that gives us room to compare the price to its current cash flows and derive certain growth assumptions. What has the cash flow history been?<img src=\"https://static.tigerbbs.com/f00d177cd1702da079ab895431c41384\" tg-width=\"640\" tg-height=\"174\"/>Cash Flow Data (Seeking Alpha)It&#39;s been pretty volatile over recent years, but the trend has been improvement and growth. In particular, COVID accelerated the growth of the video game industry (and thus demand for AMD&#39;s GPUs). While the COVID boom expired, it&#39;s selling more product than in 2019. I chose to average this mini-cycle shown in the years spanning 2020 - 2023. Using these totals of operating cash flows and capex, we get an average, annual free cash flow of slightly over $2 billion. We can then use a Discounted Cash Flow model to infer growth assumptions.<img src=\"https://static.tigerbbs.com/c3eaeebf982d09df3ec2373c95983855\" tg-width=\"640\" tg-height=\"194\"/>Author&#39;s calculationIf we expect this level of FCF to grow at about 27% each year for the next decade—and for such continued growth to be reflected in the terminal multiple—that gets us to a similar market cap. We could tweak things between growth and multiples for fun, but that gives us a general idea.Plenty of readers are aware of the Price-Earnings-Growth Ratio, or PEG. Developed by famed investor Peter Lynch and discussed in his book, One Up on Wall Street, it&#39;s a handy gauge for investors looking for &#34;growth at a reasonable price.&#34; Lynch concluded that if the P/E ratio (cash flow statements weren&#39;t standard until the 90s) is less than or equal to the average growth rate, a stock would likely be a good buy and produce profitable returns. There are a few excerpts of his worth examining. First, on growth rates:<blockquote>My favorites are the ones in the 20 to 25 percent range. I&#39;m wary of companies that seem to be growing faster than 25 percent. Those 50 percenters are usually in hot industries, and you know what that means.</blockquote>&#34;What that means&#34; is that increased competition or market saturation will soon follow. On high multiples, he wrote:<blockquote>...wonderful companies become risky investments when people overpay, using McDonald&#39;s as exhibit A. In 1972, the stock was bid up to a precarious 50 times earnings. With no way to &#34;live up to these expectations,&#34; the price fell from $75 to $25, a great buying opportunity at a &#34;more realistic&#34; 13 times earnings.</blockquote>McDonald&#39;s is a fast food chain, but his book is full of similar examples from other industries. Companies are only as valuable as they are capable of making money, and however successful the business, it will produce a finite amount of earnings, have a finite value, and thus deserve a finite stock price. If the P/FCF is about 48 on recent prices, that means either a golden age of growth is ahead or that AMD is grossly overpriced, and I believe the second is more likely.What&#39;s the impact of AI to AMD&#39;s earnings? We don&#39;t know yet, and if we did, I doubt anyone would consider a multiple of 48 to be a bargain.<h2 id=\"id_4228085524\">Mystery of AI-Driven Growth</h2>The company has been laying out its intentions for AI-focused product. While some may quibble about whether or not NVDA is better for this, it still contributes to an overall rise in demand for chips.What I find interesting is the sheer certainty that seems to exist on the value of AI. I&#39;ve seen reference to this figure by Statista, saying the market value of AI will be just under $2 trillion by the end of the decade. We can wonder how they reasonable came to that, but, let&#39;s just observe carefully what it says the abstract:<blockquote>The AI market covers a vast number of industries. Everything from supply chains, marketing, product making, research, analysis, and more are fields that will in some aspect adopt artificial intelligence within their business structures.</blockquote>In other words, the value of AI is going to felt in many places, not necessarily chip-makers. While stock prices of companies like AMD are up on this optimism, how certain is it that they will be the best investments? As I explored above, a business&#39;s fundamental value is in its cash flow, and price matters.I also mentioned McDonald&#39;s above when quoting Lynch, but I think they can be useful again. While investors mainly started to see the potential of chains like McDonald&#39;s in the 70s, buyers of MCD at that time were simply late beneficiaries of the automobile revolution. Plenty of car manufacturers were started and went out of business in the first half of the 20th Century. If you picked Ford or GM, you were right. Meanwhile, other businesses developed their models to benefit from automobiles, such that it didn&#39;t matter whose car you bought.Fast food doesn&#39;t care if you take a Pontiac to their drive-thru or not. GEICO gets to write an insurance policy either way (and it&#39;s been a great investment for Buffett). My point is that the winners and losers of technological revolution may not all become clear at once. In fact, there&#39;s always an element of trial and error that spans years.Investors who get overeager can price in growth that hasn&#39;t occurred in a stock like AMD, and they may tie up their capital while overlooking other opportunities that are soon to arrive.<h2 id=\"id_1489106187\">History of the Share Price</h2>Unlike some other currently popular stocks, AMD has been around for a long time. We can look at the history of its stock and various ups and downs. With the power of copying and pasting (sadly, not generative AI), I got a chart that marks the dates of different peaks in the stock&#39;s history. To assist further, here are the prices:<ul style=\"\"><li>May 29, 2000: $45.07</li><li>Feb. 13, 2006: $40.33</li><li>Nov. 22, 2021: $154.81</li></ul><img src=\"https://static.tigerbbs.com/c3e87029494fe2cf84ad2467f7b91c81\" tg-width=\"640\" tg-height=\"225\"/>AMD Price History (Seeking Alpha)The market has shown tremendous ability to change its mind about this company and stock throughout its life. No doubt, people believed that AMD&#39;s chips would be needed during the Dot Com Bubble, and they were right. They were also early, and usually it pays to be early in investing, just not when you overpay (as Lynch argued). Only recently, 20 years after that peak, did AMD reach the kind of earnings that its Dot Com pricing implied. Thus, the cardinal sin was rewarding a stock price before a company had actually delivered.With the current peak and that the kind of multiple, one has to wonder if there is this same danger of being too early and at too high of a price. Not only that, one has to wonder if the risk is even greater now.<img src=\"https://static.tigerbbs.com/13d60b236bc55a2e60558e8a5c3a74b8\" tg-width=\"640\" tg-height=\"230\"/>AMD Market Cap (Seeking Alpha)People often consider the stock price history, but I think the history of the market cap is more important because it shows just how much the company has grown (or not grown). While today&#39;s peak is only about 4x that of 2000&#39;s, the market cap is more than 20x. Today&#39;s stock price is for astronomical growth of a much larger company. All else being equal, 2000&#39;s price was less risky because there was a least more room to grow, and I think that&#39;s another major risk that investors are overlooking.<h2 id=\"id_3991879825\">The Indirect Capex of SBC</h2>Stock-based compensation, or SBC, is a figure that is resolved in the cash flow statement because it is a non-cash item. When calculating free cash flow, we need to know how much cash the company is actually generating, so figures like these get removed.Similarly, since cash spent on buybacks or dividends goes to shareholders, we don&#39;t count that like we would capex. Yet, for practical purposes, it may be wise to do so for some companies.<img src=\"https://static.tigerbbs.com/75dd6ee8d5cb8fd52b4ef0f08e2ad7cd\" tg-width=\"640\" tg-height=\"189\"/>Cash Flow Statement (2023 Form 10K)Above I have condensed the 2023 cash flow statement for AMD to make it easier to see the figure for SBC, operating cash flows, capex, and repurchases of common stock. Please note that SBC is well in excess of capex for each of the last three years, that it has been growing, and that about $6.5b was spent in buybacks over the last three years. Some of that sum is effectively a form of capex.Realistically, this makes free cash flow lower by transferring an operating expense (as in, just paying employees more money) to the buybacks (which are in the cash flow statement). Whether this is intentional is unimportant. The impact is the same either way, and it&#39;s a subtle detail that investors should know.Most importantly, it suggests that my estimate of FCF of $2b earlier was a bit too high (again, from a practical lens, not how FCF is typically defined). Considering this rising trend of SBC and buybacks during years when the stock is at a high, one has to wonder what a practical estimate is, but it could be a $1b or less. To me, that suggests that AMD&#39;s multiple is not only high for the market cap but doubly so for individual shares, magnifying the risk.<h2 id=\"id_1541592541\">Conclusion</h2>The parable of the drowning man tells of someone who was trapped in a flood. As the waters rose and rose, forcing him to higher levels of his house, three rescue attempts (usually two boats and a helicopter) were made to him. Each time, he refused help, saying that God would rescue him. After he drowns in the flood, he asks God in Heaven why he didn&#39;t save him, and God tells him, &#34;I sent you two boats and a helicopter.&#34;In discussions (that I see or where I participate) there is this devotion to an idea of endlessly rising returns, without thought for a fair price based on financial ability. This can be dangerous when the hopeful assumptions baked into a stock price either fail to deliver or take 20 years instead of 5 to do so. 2022 showed what can happen to shares of AMD when a vision is shattered.Folks don&#39;t make money buy overpaying for stocks. They also don&#39;t make money by holding them forever, however cheaply they got them. They make money by selling and locking in a profit at some point in time. With many rises and falls over its years, investors today are offered an exit price that is over 100x its recent free cash flows. With growth assumptions that may never materialize, limited further by the depletive power of share-based compensation and buybacks, a price around $170 may not come again for a long time. For these reasons, I think it&#39;s wise to take the rescue boat and SELL.</body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>AMD: Take The Rescue Boat Already</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; 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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nAMD: Take The Rescue Boat Already\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-02-14 13:30 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4669945-amd-take-the-rescue-boat-already>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nAdvanced Micro Devices is a semiconductor company that has seen success in capturing market share from Intel and Nvidia.The current stock price of AMD is unreasonably high, given unrealistic growth ...\n\n<a href=\"https://seekingalpha.com/article/4669945-amd-take-the-rescue-boat-already\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"BK4504":"桥水持仓","IE00B1BXHZ80.USD":"Legg Mason ClearBridge - US Appreciation A Acc USD","LU0316494557.USD":"FRANKLIN GLOBAL FUNDAMENTAL STRATEGIES \"A\" ACC","IE00BFSS8Q28.SGD":"Janus Henderson Balanced A Inc SGD-H","BK4529":"IDC概念","IE0034235188.USD":"PINEBRIDGE GLOBAL FOCUS EQUITY \"A\" (USD) ACC","LU0708995401.HKD":"FRANKLIN U.S. OPPORTUNITIES \"A\" (HKD) ACC","LU1244550577.SGD":"FTIF - Franklin Global Multi-Asset Income A (Mdis) SGD-H1","LU1951198990.SGD":"Natixis Thematics AI & Robotics Fund H-R/A SGD-H","AMD":"美国超微公司","LU1951200564.SGD":"Natixis Thematics AI & Robotics Fund R/A SGD","IE0009356076.USD":"JANUS HENDERSON GLOBAL TECHNOLOGY AND INNOVATION \"A2\" (USD) ACC","IE00BJTD4N35.SGD":"Neuberger Berman US Long Short Equity A1 Acc SGD-H","NVDA":"英伟达","LU0256863811.USD":"ALLIANZ US EQUITY \"A\" INC","IE00B7KXQ091.USD":"Janus Henderson Balanced A Inc USD","BK4592":"伊斯兰概念","LU1585245621.USD":"EASTSPRING INV GLOBAL LOW VOLATILITY EQUITY FUND \"A\" (USD) ACC B","LU0348723411.USD":"ALLIANZ GLOBAL HI-TECH GROWTH \"A\" (USD) INC","LU1923623000.USD":"Natixis Thematics AI & Robotics Fund R/A USD","BK4585":"ETF&股票定投概念","GFS":"GLOBALFOUNDRIES Inc.","LU0109391861.USD":"富兰克林美国机遇基金A Acc","IE00BJJMRX11.SGD":"Janus Henderson Balanced A Acc SGD","LU1988902786.USD":"FULLERTON LUX FUNDS GLOBAL ABSOLUTE ALPHA \"I\" (USD) ACC","IE00B19Z9505.USD":"美盛-美国大盘成长股A Acc","IE0004445239.USD":"JANUS HENDERSON US FORTY \"A2\" (USD) ACC","BK4587":"ChatGPT概念","LU0053666078.USD":"摩根大通基金-美国股票A（离岸）美元","BK4575":"芯片概念","LU0079474960.USD":"联博美国增长基金A","LU0082616367.USD":"摩根大通美国科技A（dist）","GB00BDT5M118.USD":"天利环球扩展Alpha基金A Acc","BK4527":"明星科技股","IE00B1XK9C88.USD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A\" (USD) ACC","LU0061474960.USD":"天利环球焦点基金AU Acc","LU0353189680.USD":"富国美国全盘成长基金Cl A Acc","BK4588":"碎股","BK4579":"人工智能","MCD":"麦当劳","LU1989764664.SGD":"CPR Invest - Global Disruptive Opportunities A2 Acc SGD-H","IE00BKDWB100.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5H\" (SGDHDG) ACC","BK4141":"半导体产品","LU0321505868.SGD":"Schroder ISF Global Dividend Maximiser A Dis SGD","BK4503":"景林资产持仓","LU0353189763.USD":"ALLSPRING US ALL CAP GROWTH FUND \"I\" (USD) ACC","LU2264538146.SGD":"Fullerton Lux Funds - Global Absolute Alpha A Acc SGD","BK4573":"虚拟现实","BK4581":"高盛持仓","INTC":"英特尔"},"source_url":"https://seekingalpha.com/article/4669945-amd-take-the-rescue-boat-already","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2411108323","content_text":"Advanced Micro Devices is a semiconductor company that has seen success in capturing market share from Intel and Nvidia.The current stock price of AMD is unreasonably high, given unrealistic growth expectations and the situation with share repurchases, making it a sell for long-term investors.The history of AMD's stock price and market cap shows the risk of overpaying for the stock and the potential for limited further growth.Advanced Micro Devices (NASDAQ:AMD) is another, alongside Nvidia (NVDA), it's known for successfully capturing market share from Intel (INTC) and achieving enormous returns as a result. While this mostly rode the rise of the video game industry, advances in AI in 2023 have opened further doors for the company and the semi industry broadly.A recent rally has brought AMD to an all-time high over $170, a range at which it has traded flat for the last few weeks. For folks looking to \"survive the flood,\" I'm going to explain why this price is unreasonably rich for this company, given the unrealistic growth expectations, previous peaks, and the situation with share repurchases, making the stock a SELL for long-term investors.Reverse-Engineering the ValuationThe first thing is to unpack is what's reflected in the current valuation of AMD. With a market cap around $278 billion, it's one of the most expensive companies out there, but that gives us room to compare the price to its current cash flows and derive certain growth assumptions. What has the cash flow history been?Cash Flow Data (Seeking Alpha)It's been pretty volatile over recent years, but the trend has been improvement and growth. In particular, COVID accelerated the growth of the video game industry (and thus demand for AMD's GPUs). While the COVID boom expired, it's selling more product than in 2019. I chose to average this mini-cycle shown in the years spanning 2020 - 2023. Using these totals of operating cash flows and capex, we get an average, annual free cash flow of slightly over $2 billion. We can then use a Discounted Cash Flow model to infer growth assumptions.Author's calculationIf we expect this level of FCF to grow at about 27% each year for the next decade—and for such continued growth to be reflected in the terminal multiple—that gets us to a similar market cap. We could tweak things between growth and multiples for fun, but that gives us a general idea.Plenty of readers are aware of the Price-Earnings-Growth Ratio, or PEG. Developed by famed investor Peter Lynch and discussed in his book, One Up on Wall Street, it's a handy gauge for investors looking for \"growth at a reasonable price.\" Lynch concluded that if the P/E ratio (cash flow statements weren't standard until the 90s) is less than or equal to the average growth rate, a stock would likely be a good buy and produce profitable returns. There are a few excerpts of his worth examining. First, on growth rates:My favorites are the ones in the 20 to 25 percent range. I'm wary of companies that seem to be growing faster than 25 percent. Those 50 percenters are usually in hot industries, and you know what that means.\"What that means\" is that increased competition or market saturation will soon follow. On high multiples, he wrote:...wonderful companies become risky investments when people overpay, using McDonald's as exhibit A. In 1972, the stock was bid up to a precarious 50 times earnings. With no way to \"live up to these expectations,\" the price fell from $75 to $25, a great buying opportunity at a \"more realistic\" 13 times earnings.McDonald's is a fast food chain, but his book is full of similar examples from other industries. Companies are only as valuable as they are capable of making money, and however successful the business, it will produce a finite amount of earnings, have a finite value, and thus deserve a finite stock price. If the P/FCF is about 48 on recent prices, that means either a golden age of growth is ahead or that AMD is grossly overpriced, and I believe the second is more likely.What's the impact of AI to AMD's earnings? We don't know yet, and if we did, I doubt anyone would consider a multiple of 48 to be a bargain.Mystery of AI-Driven GrowthThe company has been laying out its intentions for AI-focused product. While some may quibble about whether or not NVDA is better for this, it still contributes to an overall rise in demand for chips.What I find interesting is the sheer certainty that seems to exist on the value of AI. I've seen reference to this figure by Statista, saying the market value of AI will be just under $2 trillion by the end of the decade. We can wonder how they reasonable came to that, but, let's just observe carefully what it says the abstract:The AI market covers a vast number of industries. Everything from supply chains, marketing, product making, research, analysis, and more are fields that will in some aspect adopt artificial intelligence within their business structures.In other words, the value of AI is going to felt in many places, not necessarily chip-makers. While stock prices of companies like AMD are up on this optimism, how certain is it that they will be the best investments? As I explored above, a business's fundamental value is in its cash flow, and price matters.I also mentioned McDonald's above when quoting Lynch, but I think they can be useful again. While investors mainly started to see the potential of chains like McDonald's in the 70s, buyers of MCD at that time were simply late beneficiaries of the automobile revolution. Plenty of car manufacturers were started and went out of business in the first half of the 20th Century. If you picked Ford or GM, you were right. Meanwhile, other businesses developed their models to benefit from automobiles, such that it didn't matter whose car you bought.Fast food doesn't care if you take a Pontiac to their drive-thru or not. GEICO gets to write an insurance policy either way (and it's been a great investment for Buffett). My point is that the winners and losers of technological revolution may not all become clear at once. In fact, there's always an element of trial and error that spans years.Investors who get overeager can price in growth that hasn't occurred in a stock like AMD, and they may tie up their capital while overlooking other opportunities that are soon to arrive.History of the Share PriceUnlike some other currently popular stocks, AMD has been around for a long time. We can look at the history of its stock and various ups and downs. With the power of copying and pasting (sadly, not generative AI), I got a chart that marks the dates of different peaks in the stock's history. To assist further, here are the prices:May 29, 2000: $45.07Feb. 13, 2006: $40.33Nov. 22, 2021: $154.81AMD Price History (Seeking Alpha)The market has shown tremendous ability to change its mind about this company and stock throughout its life. No doubt, people believed that AMD's chips would be needed during the Dot Com Bubble, and they were right. They were also early, and usually it pays to be early in investing, just not when you overpay (as Lynch argued). Only recently, 20 years after that peak, did AMD reach the kind of earnings that its Dot Com pricing implied. Thus, the cardinal sin was rewarding a stock price before a company had actually delivered.With the current peak and that the kind of multiple, one has to wonder if there is this same danger of being too early and at too high of a price. Not only that, one has to wonder if the risk is even greater now.AMD Market Cap (Seeking Alpha)People often consider the stock price history, but I think the history of the market cap is more important because it shows just how much the company has grown (or not grown). While today's peak is only about 4x that of 2000's, the market cap is more than 20x. Today's stock price is for astronomical growth of a much larger company. All else being equal, 2000's price was less risky because there was a least more room to grow, and I think that's another major risk that investors are overlooking.The Indirect Capex of SBCStock-based compensation, or SBC, is a figure that is resolved in the cash flow statement because it is a non-cash item. When calculating free cash flow, we need to know how much cash the company is actually generating, so figures like these get removed.Similarly, since cash spent on buybacks or dividends goes to shareholders, we don't count that like we would capex. Yet, for practical purposes, it may be wise to do so for some companies.Cash Flow Statement (2023 Form 10K)Above I have condensed the 2023 cash flow statement for AMD to make it easier to see the figure for SBC, operating cash flows, capex, and repurchases of common stock. Please note that SBC is well in excess of capex for each of the last three years, that it has been growing, and that about $6.5b was spent in buybacks over the last three years. Some of that sum is effectively a form of capex.Realistically, this makes free cash flow lower by transferring an operating expense (as in, just paying employees more money) to the buybacks (which are in the cash flow statement). Whether this is intentional is unimportant. The impact is the same either way, and it's a subtle detail that investors should know.Most importantly, it suggests that my estimate of FCF of $2b earlier was a bit too high (again, from a practical lens, not how FCF is typically defined). Considering this rising trend of SBC and buybacks during years when the stock is at a high, one has to wonder what a practical estimate is, but it could be a $1b or less. To me, that suggests that AMD's multiple is not only high for the market cap but doubly so for individual shares, magnifying the risk.ConclusionThe parable of the drowning man tells of someone who was trapped in a flood. As the waters rose and rose, forcing him to higher levels of his house, three rescue attempts (usually two boats and a helicopter) were made to him. Each time, he refused help, saying that God would rescue him. After he drowns in the flood, he asks God in Heaven why he didn't save him, and God tells him, \"I sent you two boats and a helicopter.\"In discussions (that I see or where I participate) there is this devotion to an idea of endlessly rising returns, without thought for a fair price based on financial ability. This can be dangerous when the hopeful assumptions baked into a stock price either fail to deliver or take 20 years instead of 5 to do so. 2022 showed what can happen to shares of AMD when a vision is shattered.Folks don't make money buy overpaying for stocks. They also don't make money by holding them forever, however cheaply they got them. They make money by selling and locking in a profit at some point in time. With many rises and falls over its years, investors today are offered an exit price that is over 100x its recent free cash flows. With growth assumptions that may never materialize, limited further by the depletive power of share-based compensation and buybacks, a price around $170 may not come again for a long time. For these reasons, I think it's wise to take the rescue boat and SELL.","news_type":1},"isVote":1,"tweetType":1,"viewCount":110,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"upFlag":false,"length":42,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}