4 Charts That Make AMD Stock Worth Buying

Kudos to Advanced Micro Devices(NASDAQ:AMD) for staying competitive with technological rivals Intel(NASDAQ:INTC) AND Nvidia (NASDAQ: NVDA). That’s no small feat.

However, AMD is not the leader in the graphics processing industry or the computer processor market. Given that investors are typically encouraged (and tend to) own shares in the leading companies in a given industry, Advanced Micro Devices is not a stock that is always easy to get excited about buying.

However, this may apply to a situation where the name in second place is actually the greatest investment prospect among the companies in question. Four charts illustrate why.

Data centers are now the main breadwinner for the family

The first chart seems complicated at first glance, but it is not. This is just a comparison of how each of AMD’s business lines (datacenter, gaming, embedded and client) has evolved over time. The bars are revenues and the lines are operating income; Each company’s revenue and operating income are also color-coordinated.

As you can see, data centers – due to the growing interest in all things artificial intelligence – are now the largest source of company sales and profits.

It’s an encouraging evolution. Not only is data centers the best opportunity for the tech sector to grow in the foreseeable future, but the continued rise of AI will make this the most consistent and reliable company Advanced Micro Devices will be in during that time. Precedence Research suggests that the AI ​​hardware market will grow at an incredible annual rate of 24.3% through 2033, which is in line with several other industry forecasts.

Money is flowing again

AMD hasn’t always been hip-deep in AI hardware. It lagged far behind Nvidia just a few quarters ago. Advanced Micro Devices arguably seized that opportunity only late last year, unveiling the M1300X GPU designed specifically for AI applications. Before that, its technology wasn’t a household name for AI applications.

Problem? Developing or rebuilding an entire hardware architecture is not cheap. The company has recently spent a lot of money on research and development with no immediate return on investment. It also gradually booked the costs of acquiring Xilinx in early 2022, which has hurt its net income in the meantime.

However, there is light at the end of the tunnel: as the chart shows, after a noticeable stagnation last year, operating cash flow and net profit are normalizing to a positive level again. (The declines in the last quarter are largely seasonal, rather than a sign of a new headwind.)

Gross profits are obviously flat, and Advanced Micro Devices is forced to compete on price on the AI ​​hardware front. But it’s good. The company continues to win this business; will gain pricing power as AI technology continues to prove itself. Meanwhile, gross profit margin rates are stable.

To that end, analysts expect last year’s earnings per share of $2.65 to rise to $3.51 per share this year and $5.59 per share next year. That’s when the party will really get started, with this year’s projected earnings per share expected to nearly triple by 2028.

To sum up? Shareholders don’t have to worry that AMD will be able to operate as it wants, simply because it doesn’t have profits or extra cash to work with.

And speaking of extra cash…

Advanced Micro Devices is virtually debt-free

And last but not least, AMD has very little debt and could be debt free if it so chose.

At the end of March, the company only serviced about $1.7 billion in long-term debt, compared with about $6 billion in cash or near-cash on its balance sheet. It also has nearly $10 billion in assets on its books, such as inventory and receivables, that can quickly turn into cash if needed. For perspective, Advanced Micro Devices’ current market cap is $257 billion.

Do not read too largely in the news: AMD has nearly $1.8 billion in “other” long-term liabilities that don’t qualify as debt. It also has just over $3.4 billion in accrued short-term liabilities. There are bills to pay, that’s for sure.

Still, with $17.1 billion in current assets and less than half that amount in short-term and long-term liabilities, Advanced Micro Devices enjoys significantly more fiscal flexibility than many other tech giants. Also note that AMD’s total liabilities are simply shrinking.

This is more than enough to convince you to buy AMD stock

Of course, there are typical risks. Chief among them is the possibility that Intel and Nvidia will try to keep AMD in check again before this up-and-comer steals additional market share.

But the fiscal trajectories shown in the charts still paint a bright picture. This company is doing a few things right and is now — finally — reaping the rewards. More of the same progress is in the cards. Most other companies Love be in this particular situation.

So let’s connect the dots: Even if largely for mathematical reasons, the stock’s decline from its March peak is a buying opportunity.

Is it worth investing $1000 in Advanced Micro Devices now?

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 call options on Intel and short August 2024 $35 call options on Intel. The Motley Fool has a disclosure policy.