4 Charts That Make AMD Stock Profitable

A tribute to Advanced Micro Devices (NASDAQ:AMD) remain competitive with technological rivals Intel (NASDAQ: INTC) AND Nvidia (NASDAQ: NVDA)This is no small feat.

However, AMD is not the leader in the graphics processing industry or the computer processor market. Given that investors are typically told that they should (and tend to) own stocks of a company’s leading companies, Advanced Micro Devices is not a stock that is always easy to get excited about buying.

However, this could be an example where the second-ranked name is actually the best investment prospect among the companies in question. Four charts illustrate why.

Data centers are now the breadwinners of 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 units (datacenter, gaming, embedded and client) has evolved over time. The bars are revenues and the lines are operating income; each business unit’s revenue and operating income are also color-coordinated.

As you can see, thanks to the growing interest in all things AI, data centers are now the largest source of company revenue and profit.

This is an encouraging development. Not only do data centers represent the best growth opportunity for the technology sector for the foreseeable future, but the continued advancement of AI will make them the most consistent and robust businesses that Advanced Micro Devices will be in during this time. Precedence Research suggests that the AI ​​hardware market will grow at an incredible compound annual rate of 24.3% through 2033, which is in line with several other industry forecasts.

The money is flowing again

AMD hasn’t always been waist-deep in the AI ​​hardware industry. Just a few quarters ago, it was far behind Nvidia. Advanced Micro Devices arguably took advantage of this opportunity only late last year when it unveiled the M1300X GPU, designed specifically for AI applications. Previously, its technology was not a popular name for AI applications.

The problem? Developing or rebuilding an entire hardware architecture is not cheap. The company has been spending a lot of money on R&D recently, and the investment does not pay off immediately. It is also gradually recording costs for the Xilinx acquisition in early 2022, which has reduced its net profit in the meantime.

There is light at the end of the tunnel, however: as the chart shows, after a clear lull last year, operating cash flow and net income are normalizing back to positive territory. (The declines in the last quarter are largely seasonal and do not indicate the emergence of new headwinds.)

The story continues

Gross profits are clearly flat, and Advanced Micro Devices is forced to compete on price in AI hardware. But that’s good. The company is still winning this business; it will gain pricing power as it continues to prove its AI technology. Gross profit margins are currently stable.

With that in mind, analysts are expecting earnings per share to rise from $2.65 last year to $3.51 per share this year, on track to reach $5.59 per share next year. That’s when the real fun begins, with this year’s expected earnings per share expected to nearly triple by 2028.

Conclusion? Shareholders don’t have to worry that AMD will be able to operate as it wants, simply because there is no revenue or extra cash.

And speaking of extra money…

Advanced Micro Devices is virtually debt-free

Last, but not least, AMD has very little debt and could get rid of its debt if it wanted to.

As of the end of March, the company had paid down only about $1.7 billion in long-term debt, 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 accounts receivable, that could be converted to cash at short notice if needed. For perspective, Advanced Micro Devices’ current market capitalization is $257 billion.

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

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

That’s more than enough to buy AMD stock

Of course, the usual risks apply. Chief among them is the possibility that Intel and Nvidia will make a specific move to stop AMD before the upstart steals even more market share.

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

So connect the dots: Even if it’s mostly for mathematical reasons, the decline in this stock’s value from its March high represents a buying opportunity.

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

4 Charts That Make AMD Stock Worth Buying Originally published by The Motley Fool