$AMD (+0,24%)
$INTC (+0,18%)

$AMD (+0,24%) generated more revenue from data centers than Intel for the first time in the last quarter $INTC (+0,18%) 🚀

$AMD (+0,24%)

UNVEILS NEXT GENERATION KI PROCESSORS AT CES

AMD unveils the Ryzen AI Max, Ryzen AI 300 and Ryzen 200 series processors, bringing powerful AI capabilities to next-generation PCs.

First collaboration with $DELL announced for business PCs; chips to debut in updated PC lines from Asus, Lenovo and Dell...

The biggest $AMD (+0,24%) announcement of the day is $DELL with $AMD (+0,24%) making it big in commercial notebooks. Dell has never been able to sell large volumes of non-Intel commercial PCs in the past and $AMD (+0,24%) been unwilling to invest in enterprise PC GTM, but this time it could work.

For $AMD (+0,24%) it's important to invest more in the commercial channel, get more sales people in the enterprise space, create more enterprise content and have an answer to $INTC (+0,18%) vPro.

In 2024, a lot has happened for me financially. I started investing around the middle of 2021. As I come from a family in which investing in the stock market was rather frowned upon (my parents invested in car manufacturers in 2000, which then slipped in 2001 just like everything else and they realized the losses), I only dared to start with small amounts bit by bit on an ETF basis in 2021. Financial flow classic 70% MSCI World ETF and 30% MSCI EM. The good thing about this was above all building up the automatism of investing money steadily and not waiting until the end of the month.

However, in 2024 I started to look more closely at the topic of finance, sometimes watching Berkshire conferences with Warren Buffett and Charlie Munger and realized that I was interested in individual stocks and would like to own Apple (shares) myself, for example. In February 24' I then looked at my EM position and saw that the position had been more or less at 0 since '21. So I sold just under €1000 and put it into Apple. And no, I didn't calculate the intrinsic value of the share first and didn't know at the time that Apple would be launching devices with AI at the end of 2024. I myself work in the field of software engineering/data science and if someone has the choice, you actually always take the Macbook over Windows computers. But that's another topic for debate :)

The Apple shares then performed really well even after the purchase and I was fascinated by the fact that I generated more unrealized profits with a single share or 6 Apple shares within 2 months than with the EM in 4 years. (I'll come back to EM later)

From March onwards, I suspended my savings plan in the ETFs and simply put the money in my Scalable clearing account instead. I didn't know what exactly I wanted to buy now, so pretty much from mid-24' I started to dive more into investing and how to analyze stocks. I had already studied discounted cash flow analysis in my bachelor's degree, back then in the subject of finance with a 3.0 :D. So I built an Excel spreadsheet and started using DCF models to calculate the intrinsic value of shares.

But what exactly should my strategy be when buying shares?

I mean, I already liked getting a dividend from Apple, so did I want to pursue some kind of dividend growth strategy? Should I go for "fast growers" as Peter Lynch would say? But should I then also add so-called "stalwarts" (dividend stocks) and "asset plays" (stocks with very expensive inventories, for example, or investments and cash whose book value is well below their actual value) to my portfolio, as he advises?

"Only buy something that you'd be perfectly happy to hold if the market shut down for ten years" - W. Buffett

Long-term focus

My investment horizon is over 10 years, so it is important to me to have some kind of predictability of income from the companies I want to buy. It was also important for me to be patient when buying from the outset and to allow some time to pass in order to check whether an investment thesis holds up over quarters.

Quality

I focus exclusively on companies with a leading position in their respective industry, either number 1 or number 2 in the respective sector with a large market share. The important thing here is that growth should be primarily organic. This means that the company should either simply build good, irreplaceable products that customers love and therefore remain loyal to, or simply be so influential that they can simply raise their prices without really losing customers ("pricing power" like Apple)

Concentration

Especially for someone coming from the financial flow school where the more diversified the investment, the better, it was hard to get used to this element. The investor Dev Kantesaria, who has successfully managed Valley Forge Capital for years and whose philosophy is also based on mine, once described this very aptly in an interview: "Why should I invest in my 25th best investment idea?". Accordingly, my goal is only to invest in a maximum of 15 individual stocks - I can't even manage to regularly check more in my free time and check whether the investment thesis still holds up.

Discipline

With the Emerging Markets ETF, I have held a position in my portfolio for several years purely out of conviction that this investment in emerging markets will work out in the long term. I also want to hold my stocks with the same conviction that they will perform well over the long term. In addition, I usually invest in companies when their intrinsic value suggests a margin of safety of at least 15-20%. For example, there was a slump in Alphabet shares in the summer with the unrest that Alphabet might be split up. The share was worth around €150 at the time. All of Alphabet's individual businesses have a combined intrinsic value of €250-300. Also related to this strategy element is that I don't really touch individual sectors that are associated with large research and development costs, for example, unless I really know my way around them. So I avoid biotech companies because I hardly know anything about them, but I invest in tech companies because I work in IT myself.

So I look for companies that are quasi monopolies in their respective industries, with strong market shares and a large moat due to irreplaceable or hard-to-penetrate products and a solid margin with a focus on steady free cash flow growth.

So why do I actually have the Emerging Markets ETF?

I asked myself this question and then promptly took another look at just ETF to see which stocks are actually in it. The top 10 holdings accounted for almost 25%. Why is that important? Some people always complain that the Magnificent 7 have such a high share in the S&P500, also slightly more than 25%, but this is usually due to the fact that companies are often weighted by market capitalization. If you then take a closer look at the top 10, 5 of them are Chinese companies. In general, China accounts for just under 25% of the ETF share. Chinese equities are not bad per se, there are some very good companies. However, the constant intervention of the government is a problem, laws can be changed overnight and a company becomes obsolete, or Mr. Ma, the CEO of Alibaba, simply disappears for a few months after having expressed mild criticism of government officials in a speech. These characteristics go against my strategy as formulated above, which is why the EM ETF was thrown out completely in July.

I then slowly tried to build up my individual positions towards the end of July, primarily $CRM (+0,06%) , $ASML (-0,25%) , $MSFT (+0,2%) , $BKNG (+0,2%) , $GOOG (-0,03%) , $V (+0,08%) and $AMZN (+0,02%) . On August 5 there was a small correction, I think it was due to the "Japanese carry trade". That week I made another big purchase, very happy not to have invested all my freed-up EM capital at once. As a result, I was able to invest heavily in Amazon and Alphabet and make them my largest single positions.

Overall, I am very happy with the decision. I am aware that the last stock market year was a very good one overall and that you shouldn't be deceived by appearances. Things will probably not always go so well. My third-largest single position, in which I was in the red at just under €1500 in the meantime $ASML (-0,25%) is good proof of this. Nevertheless, this company is a virtual monopoly in the chip manufacturing sector and will most likely remain so for the next 10 years. Therefore, I can only shrug my shoulders and look at the reports from the Magnificent 7, which are constantly expanding their data centers and in some cases were unable to meet demand in the last quarters of 2024! But there are already some good articles on this here on getquin. A new addition at the end of '24 is $UBER (+0,06%) I will also be steadily expanding my position there, and the watchlist also includes $MELI (+0,05%) , $MCO (+0,29%) , $SPGI (+0,25%) , $CAKE (+0%) and $AMD (+0,24%) for 2025.

To summarize:

Portfolio performance: 31% vs. S&P500 25%

Invested capital: approx. 22,000 euros

Portfolio value growth: approx. 42,000 euros

Goals for 2025:

• 30k invested (a large crypto cash-out will take place with approx. 20-30k, not included in the portfolio)
• Beat the S&P500
• Increase portfolio value to 150k
• Sell $TTWO (+0,04%) (GTA 6 bet, but by the time this appears it feels like you've already done 10x in other companies)
• expansion $SPGI (+0,25%) and addition of $MCO (+0,29%) (credit rating duopolies)

McKinsey estimates that the global e-commerce market will be worth at least USD 14 trillion and the cloud market at least USD 1.6 trillion.

$AMZN (+0,02%) , $GOOGL (+0,12%) , $MSFT (+0,2%) , $NVDA (+0,7%) , $AMD (+0,24%)

• AMD's share price has recently fallen below USD 120 and has an attractive risk profile despite the negative investor sentiment.
• AMD's data center segment shows promising growth potential with the MI300X chip, enabling it to compete with Nvidia's dominance in the AI GPU market.
• AMD's valuation of 24.4 P/E offers a 22% discount to Nvidia, making it an attractive buy ahead of a potential recovery.
• AMD's upcoming AI accelerators and emerging data center business could significantly boost sales, gross profit and free cash flow in fiscal 2025.

Introduction:

Shares of AMD have disappointed massively since the semiconductor company announced results for its third fiscal quarter in October.

Although AMD reported a year-over-year doubling in revenue for its Data Center segment in the September quarter, a relatively modest revenue forecast for the fourth fiscal quarter has created a significant negative sentiment. It didn't help that Micron Technology recently forecast weaker-than-expected sales for the current fiscal quarter, which further increased downward pressure on semiconductor company valuations. However, with AMD shares recently falling below USD 120, I believe the risk profile here is very attractive.

Latest news and figures:

Product innovations:

AMD has introduced the "Zen 5" Ryzen processors that enhance AI capabilities in PCs, with significant improvements in AI processing power, efficiency and system performance

Strategic moves: Tim Keating has joined AMD as Senior Vice President, Government Relations and Regulatory Affairs, positioning the company to strengthen its advocacy and regulatory commitment

Market Positioning:

Despite a slight decline last week, AMD's strategic partnerships, particularly in the supply of chips for autonomous vehicles, demonstrate its strong commitment to high-growth sectors.

Current share price: $125.19

52-week range: $117.90 - $227.30

Market capitalization: 203 billion USD

Valuation and performance ratios:

P/E ratio 111.2

Forward P/E 24.4

EPS growth (YTD) 25.7%

Sales growth next year 26.9%

Analyst insights and ratings

Analysts remain very positive on AMD's growth trajectory, underpinned by recent product launches and innovations:

Consensus rating: 🌟🌟🌟🌟🌟 strong buy

Average target price: $188.67

Yield potential: 50-70%

Outlook:

Technology Advances:

The introduction of Ryzen AI 300 series processors is expected to significantly enhance computing experiences with advanced AI capabilities. This is seen as a key development that could expand AMD's market share in AI-infused computing.

Market Performance:

AMD stock has experienced a downward trend in its annual performance despite a positive return over five years, reflecting the volatile nature of the technology sector and its sensitivity to broader market shifts.

My valuation and assessment

I rated AMD shares as a strong buy after the company reported its fiscal third quarter earnings statement, due to a promising product pipeline related to AI accelerators. In addition, AMD has seen very impressive momentum in its data center business, which I don't think is properly appreciated by investors, with the company now generating more than half of its total revenue from data centers. With AMD set to ramp its MI300X Instinct chip shipments in the fourth quarter and fiscal 2025, AMD has significant potential to catch up to Nvidia, which has outpaced the company in the data center market over the past two years. Above all, AMD's valuation makes no sense to me and I believe the risk profile is extremely attractive at the moment.

Data center revenue growth is far from being reflected in AMD's valuation

AMD has long lagged behind Nvidia, but has recently pulled itself together and launched its own AI accelerator for data centers called MI300X. This AI accelerator offers data center operators an alternative to Nvidia's H100 chip, and given Nvdia's current supply constraints, the outlook for MI300X shipments is extremely positive.

While Nvidia has already seen a massive increase in its revenue, gross profits and earnings due to the success of the H100 chip in the data center segment, Nvidia still has a distinct advantage over AMD in that it generates a much higher proportion of its total revenue from its booming data center business: Last quarter, data centers were responsible for 88% of consolidated revenue, compared to just 52% for AMD. However, AMD's share of data center revenue has steadily increased over the past year, nearly doubling year-over-year, suggesting that AMD will also see an acceleration in its consolidated revenue if this current momentum continues.

AMD has a well-stocked product pipeline and plans to release new AI accelerators - MI325X and MI350 series AI accelerators - in FY2025, which are expected to boost the company's revenue growth. With AMD now generating more than half of its total revenue from data centers (compared to only about a quarter in the third quarter of 2023), accelerating data center revenue growth should also significantly boost AMD's consolidated revenue growth, gross profits and free cash flows.

In terms of gross profit, Nvidia is still significantly more profitable than AMD, but AMD's gross profit trend is also showing signs of improvement ... which is directly related to the company's success in the data center market. AMD may have even more potential to increase its gross profit margins when higher-priced next-generation AI accelerators like the MI325X hit the market next year.

Nvidia's free cash flow increased by 138% last quarter, while AMD's free cash flow increased by 67%. Nvidia is therefore increasing this important key figure twice as fast as AMD. However, AMD has the potential to catch up with Nvidia as its data center business only picked up speed in Q2 and Q3 2024. While AMD has lagged well behind Nvidia in the data center business, AMD's MI300X shipment growth in fiscal 2025 could make a big difference for the semiconductor company.

AMD's valuation makes no sense

In addition to a promising product pipeline in terms of the MI300, MI325 and MI350 AI accelerators, I believe that AMD's valuation itself now represents a small competitive advantage over Nvidia.

Nvidia is still the most highly valued semiconductor company on the market with a price-to-earnings ratio of 31.5. AMD, on the other hand, is currently valued at a P/E ratio of 24.4, which is a 24% discount to AMD's longer-term 3-year average P/E and a 22% discount to Nvidia's valuation. About three months ago, Nvidia and AMD were trading at about the same earnings multiple. However, Nvidia has a very strong investor base, which is why I believe that investors should also take advantage of the opportunity here and buy when the share price falls.

AMD's Q4 2024 guidance disappointed investors - the chip company forecast revenue of $7.5bn +/- $300m, compared to expectations of $7.6bn - leading to negative sentiment that I don't think is really justified. First, AMD's forecast miss was only minor ($7.5B midpoint vs. $7.6B expected) and second, AMD's Data Center segment has already seen a significant uptick in revenue directly related to the release of the MI300X Instinct chips.

In my last analysis on AMD, I indicated that I see a fair value for AMD shares in the range of $216-252 per share, based on a fair P/E of 36 and an estimated earnings range of $6-7 per share for fiscal 2025. I confirm my expectations and remain more optimistic than the market, which currently only expects earnings of $5.10 per share for next year. I am much more bullish on AMD as the semiconductor company is seeing significant growth in the data center space and shipments for AI accelerators are increasing, especially in the first half of 2025. I believe the market may be a bit too conservative with its estimates. Given the underlying drivers of AMD's business and proven execution in fiscal 2024, I do not believe AMD's low P/E ratio is justified.

Risks for AMD

AMD lags far behind Nvidia in terms of gross profit and even free cash flow margins. However, Nvidia's revenue growth related to a new line of AI chips in the data center market is very promising. However, there are still a lot of risks for AMD, including that Nvidia still very much dominates the AI GPU market. Although AMD could benefit from Nvidia's Blackwell deficiency, AMD still needs to improve core metrics like free cash flow and gross profit margins... which I think is necessary to justify a re-rating to a higher P/E. What would change my opinion of AMD would be if the company experienced slowing growth in the data center market or failed to increase its MI300X shipments in fiscal 2025.

Bottom line:

AMD is more than just a Christmas present at its current price and valuation. The semiconductor company is on the verge of a significant increase in data center revenue, which should simultaneously boost AMD's gross profits and free cash flows in fiscal 2025. AMD's product pipeline may be in the best shape in years, especially with regard to the company's AI accelerators for data center operations, and I believe AMD has a strong valuation advantage over Nvidia here.

Although Nvidia's shares have also consolidated recently, AMD's shares are now a solid 22% cheaper from a price-to-earnings perspective, potentially allowing investors to buy AMD ahead of a rally to the upside in 2025. AMD has several catalysts in its business, most notably the launch of next-generation AI accelerators in fiscal 2025, which could accelerate AMD's data center-driven revenue growth.

$NVDA (+0,7%)

$AMD (+0,24%)

https://d1io3yog0oux5.cloudfront.net/_25c9d25995fc185cb2286f78e557a0b1/amd/news/2024-10-29_AMD_Reports_Third_Quarter_2024_Financial_1224.pdf