Is it Too Late to Buy AMD Stock? | AMD Deep Dive Part 1

SUMMARY

Parkev Tatevosian, CFA, analyzes AMD's recent financial performance and management's revised long-term forecasts, highlighting the company's data center segment as a key growth driver. Despite raising his intrinsic value estimate, Tatevosian maintains a hold rating due to AMD's current market price exceeding his valuation metrics.

MAIN POINTS

• AMD reports a 38% year-over-year revenue increase and a more than 40% rise in earnings per share, with free cash flow tripling to a record $2.6 billion. [0:00]
• Management revises long-term growth forecasts upward, particularly for the CPU market, driving a significant share price increase. [1:01]
• Demand in the data center sector broadens beyond GPUs to include CPUs and memory, benefiting companies like AMD and Micron. [2:00]
• AMD's data center revenue jumps 57% to $5.8 billion, while other segments such as gaming and PC are expected to decline in the second half of the year. [4:00]
• Tatevosian raises his free cash flow projections for AMD through 2029 and increases his intrinsic value estimate from $180 to $280 per share. [5:01]
• Despite positive results and higher intrinsic value, AMD's current market price remains well above valuation estimates, leading to a continued hold rating. [7:00]

DETAILED ANALYSIS

AMD's latest quarterly results have propelled its stock price upward, with revenue climbing 38% year-over-year to $10.3 billion, and earnings per share rising by over 40%. Free cash flow reached a record $2.6 billion, more than tripling from the previous period. However, the substantial share price appreciation is attributed primarily to AMD management's upgraded long-term outlook, rather than the quarterly figures alone.

The company’s leadership, including CEO Lisa Su, emphasized the data center segment as the primary engine of growth, reflecting broader industry trends where demand for high-performance CPUs and memory is increasing alongside accelerators due to the expansion of AI workloads.

Since late last year, the data center market has seen a shift, with demand broadening from GPUs—traditionally dominated by Nvidia—to include CPUs and memory components. This shift has benefited companies like AMD and Micron, as evidenced by AMD's data center revenue surging 57% to $5.8 billion in the most recent quarter. In contrast, AMD's gaming and PC segments are forecasted to decline in the second half of the year, making the data center business increasingly critical to the company's overall performance.

In response to management's revised growth projections, Tatevosian adjusted his free cash flow expectations upward by $500 million for 2026, $1 billion for 2027, $1.2 billion for 2028, and $2 billion for 2029 and beyond. These adjustments led to an increase in his intrinsic value estimate for AMD from approximately $180 to $280 per share. Despite these positive developments, AMD's market price has soared to $415, significantly above both the intrinsic value and historical valuation multiples.

The forward price-to-operating cash flow stands at 58.15, and the forward price-to-earnings at 42, both near multi-year highs. Given this premium valuation, Tatevosian maintains a hold rating on AMD, suggesting that much of the positive outlook is already priced into the stock.

LINKS

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