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AMD Q2 Earnings: Blistering Growth And Outstanding Execution (NASDAQ:AMD)

AMD Markham Design Centre, Ontario, Canada.

JHVEPhoto/iStock Editorial via Getty Images

Advanced Micro Devices (NASDAQ:AMD) is a leading provider of high performance semiconductor chips. The company has generated tremendous growth over the past few years and in the quarter ending June 2022, results continued to shine. Despite this, the stock price has been butchered by ~51% between November 2021 and July 2022. This mainly driven by the high inflation and rising interest rate environment. However, over the past month, the stock price has actually popped by ~33% as the market saw an opportunity to capture, “Growth at a Reasonable Price”. AMD is still undervalued intrinsically and relative to historic multiples, let’s dive into the business model, financials and valuation for the juicy details.

AMD Stock Price Chart
AMD data by YCharts

Business Model

AMD has a $135 billion total addressable market across its four main business segments:

  1. Data Center – $50B TAM
  2. PCs – $40B TAM
  3. Embedded – $29B TAM
  4. Gaming – $16B TAM


AMD TAM (Investor presentation 2022)

This market opportunity is forecasted to expand, thanks to growing technologies such as Hyperscale Cloud, Supercomputing, 5G, Self Driving Vehicles, Simulation (Metaverse) and even IoT (Internet of Things).

Technology Trends

Technology Trends (investor presentation 2022)

AMD is a strong category leader across three of its four main segments, which include Data Center, PCs and Embedded. NVIDIA (NVDA) battles AMD as a leader in Gaming GPUs and also with a strong data center offering. The two previously planned to merge, which would have created an unstoppable chip company, but this was halted by “regulatory challenges”.

AMD’s Data Center server processors are best in class. It’s AMD EPYC are the “World’s highest performance server processor”. This offers greater performance than the competition across high performance computing (HPC), cloud and enterprise workloads. Its chips are already deployed across the three major cloud providers’ infrastructure such as AWS, Microsoft Azure and Google Cloud. In addition, AMD’s chips can be found in the Chinese cloud leader facilities, such as those run by Tencent Cloud and Alibaba Cloud. In the recent quarter, Microsoft Azure has deployed AMD Instinct MI200 accelerators for large-scale Artificial Intelligence (AI) training, which is another great endorsement of the company’s leading technology.

AMD Data Center

AMD Data Center offering (Investor Presentation 2022)

AMD’s offering is also widely deployed across enterprises such as Cisco, Dell, Hewlett-Packard Enterprises (HPE), Asus, Lenovo and more. The AMD powered Frontier Supercomputer has recently surpassed the exaflop barrier and achieved industry recognition.

Management has made it a strategic priority to become the “New Data Center Leader” and they aim to do this through leveraging their best-in-class technologies, continued innovation and executing on a consistent roadmap.

In the Gaming segment, AMD’s Zen 2 chips are used in the PlayStation 5 and the Xbox Series X/S. For client PCs, AMD’s Ryzen Processors edge Intel in the value and power consumption department and offer very close performance in other areas.

AMD products

AMD products (Investor presentation 2022)

The main reason AMD offers much more efficient consumption when compared to Intel is because of its smaller 7nm (nanometer) chips. Intel has fallen behind after struggling to execute on the latest 7nm chip designs. Meanwhile, AMD has already announced an even smaller 5nm chip, which will be the “world’s first” of this size and is expected to arrive in the fall of 2022.

AMD Zen 3 5nm

AMD Zen 5nm (Investor Presentation 2022)

Growing Financials

AMD announced strong earnings for the second quarter of 2022. Total revenue was $6.6 billion, up a blistering 70% year over year.

AMD Revenue

AMD Revenue (Earnings AMD)

This revenue growth was driven by strong Data Center revenue, up a rapid 83% year-over-year to $1.486 billion at a strong 32% operating margin. This was a result of strong sales of its EPYC Data Center Processors. Client revenue popped by 25% to $2.152 billion, as a result of strong mobile processor sales. Gaming revenue also expanded by 32% to $1.7 billion. This was driven by an increase in semi custom product sales, however, graphics revenue did decline slightly.

Segment Growth

Segment Growth (AMD Q2 22 Earnings)

Embedded computing revenue accelerated to $1.257 billion. This increased by an eye-watering 2,228%, but this increase was mainly driven by revenue inclusion from a recently finalized acquisition. AMD acquired Xilinx in an all-stock transaction, the deal was announced in 2020 but finally closed in early 2022. Xilinx is the inventor of the FPGA (field programmable gate array) which is commonly used in aerospace and military applications.

AMD’s gross margin was 46%, which represented a 2% decrease year-over-year. Operating income was $526 million, or 8%…

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