What are your thoughts on Advanced Micro Devices (AMD)?

If you semiconductor exposure, can consider TSMC (foundry), ASML (capital equipment) and KLAC (process control)

Disclaimer: This is not financial advice. Please do your own due diligence before investing in any investment product or stock.

As Sudhan has mentioned AMD had a strong quarter

• Strong Balance Sheet: AMD also quite well capitalised with a Debt to Equity Ratio of 9.8%

• Rising Free Cash Flow: AMD’s free cash flow as % of revenues increased to 24.2% from a negative number a year ago and the ratio saw successive improvements in FY 2020. For every dollar in net revenues, AMD now generates $.24 in free cash flow - and this percentage could rise to 30% by year-end. Since AMD will have sales of around $14.6b in FY 2021, AMD’s free cash flow could easily exceed US$4b this year. This money could be used to do more research and development and extend their competitive advantage.

• Strong Product Lineup: For example, AMD has just scored a landscape victory in the German market with the retailer MindFactory reporting that they were able to sell over 35,000 Ryzen 5000 & Ryzen 3000 CPUs while Intel’s processors only managed over 5000 sales in the month of November. The detailed numbers posted by Reddit user, Ingebor, show just how big of a demand there is for AMD’s Ryzen CPUs compared to Intel’s offerings.

• Good Management Team: Dr Lisa Su the CEO and her team has really turned things around. She brought the company on the brink of bankruptcy to what it is today.

• Strangely the stock keeps dipping despite such a strong quarter. The stock price fell about 8% from Wednesday to Thursday.

But some risks:

• AMD’s valuation and guidance carry big risks, though. If AMD falls short of its own guidance or revenue growth slows sooner than expected - could be because of increasing price pressure in the processor industry or the introduction of better processors by the competition - AMD might be in trouble.