Founded in 1969, Advanced Micro Devices (AMD) is one of the largest suppliers of microprocessors and graphics processors worldwide to computing OEMs. AMD designs and sells CPUs and graphics processing units (GPUs) for desktops, notebooks and gaming consoles, as well as for datacenter and professional environments. AMD's key product families include Ryzen processors for personal computers, Radeon processors for graphics and EPYC processors for servers. By segments, Data Center (including server CPU, data center GPU) accounted for 22% of 2Q22 revenue, Client segment (desktop and notebook PC processors) 33%, Gaming (GPUs and game console products) 25% and the Embedded products (AMD and Xilinx products) division 20%.
Investment Overview
Gaining share in a growing market with $300b total addressable market. AMD sees a $300b TAM consisting of $125b in Data Centre, $50b in PCs, and $37b in gaming on the back of artificial intelligence, trends towards hybrid work and gaming, and greater demand for data centres and cloud as digitalization marches on. AMD has a strong track record of innovation, design agility and proven execution. AMD has been gaining market share from Intel with its share of the processor market reaching 31.3% in 4Q22 compared to 28.5% a year earlier. The company launched a new processor in Aug-22; the Ryzen 7000 processor is a significant improvement from its predecessor, and also more efficient than Intel’s current 12th Gen Alder Lake CPUs. AMD’s technology and product roadmap 2025, including new CPUs in PCs and servers with superior performance, remains on track. We believe this could potentially further increase its market share in next 2-3 years.
Building a foothold in AI to capture the multi-billion growth opportunity. AMD believes that AI is a multi-billion growth opportunity and has seen customer engagements in relation to AI multiplying by 7x sequentially in relation to MI250 and MI300 hardware and software. The key revenue driver for AMD is its data centre segment which consensus expects to grow at a CAGR of 27% between FY22-FY26. By 2026, the proportion of revenues that accrue to data centres will rise to 45%, up from 26% in FY22. Within the data centre segment, data centre GPUs are expected to register the highest growth according to Visible Alpha – consensus forecasts embed a 107% CAGR between FY22-FY26. Demand of data centre GPUs are on an upward trajectory as they are discrete accelerators that enable the computational power required for artificial intelligence.
Well-positioned for revenue growth and margin expansion: Combination of market share gains, roadmap execution & Xilinx/Pensando synergies could drive revenue and earnings growth over the next 2-3 years. On a proforma basis, gross margins of AMD + Xilinx is 52% compared to 48% without Xilinx. In 3-4 years, AMD is targeting gross margins above 57% on product mix and cost improvements. Consensus estimates are more prudent at 53%/55% for FY25/FY26 however they reflect growing margins from 45% in FY22.
We like AMD for its strong innovation pace, clear roadmap and reliable execution. We also like AMD for its strength in the data centre and client segment however gaming and embedded could stay muted given the current console cycle for gaming and elevated inventories for Embedded (industrial, automotives and networking).
Risks
Key exposure to PC market. AMD typically derives ~50% of its revenue from the PC end market, which is highly correlated with economic conditions. Any economic headwind could slow down demand.
Direct competitors. AMD has direct competition with Intel and NVIDIA in the microprocessor and graphics markets, respectively. Therefore, any material share gains/losses could result in upside / downside to its earnings outlook.
@MillionaireTiger @Daily_Discussion @TigerEvents @TigerStars
Dyodd
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
