Is this semiconductor leader a buy?

It’s time to break down a semiconductor leader. Here is the break down of $AMD, otherwise known as Advanced Micro Devices.

Current Price: $108.63

52/Wk High: $110.33

52/Wk Low: $72.50

Market Cap: $131.8 Billion

3 Month Performance: 38.29%

Read below for the break down!

Advanced Micro Devices ($AMD) is a major global semiconductor company that was founded in 1969 and offers various components such as APUs and CPUs.

Advanced Micro Devices operates in several core segments, including the company’s Computing & Graphics segment, as well as the company’s Enterprise, Embedded, and Semi-Custom segment.

The company is led by CEO and President Dr. Lisa Su, who has been with AMD since 2012. Su boasts significant industry experience from the likes of Freescale Semiconductor, IBM, and Texas Instruments.

Furthermore, the management team is made up of leaders that boast prior experience from the likes of Synaptics, Cisco Silicon Engineering, Intel, Dell, Lenovo, and more.

Months ago AMD shifted to the acquisition front, acquiring Xilinx, the number one provider of adaptive computing solutions, in an all stock $35 billion deal.

Management was upbeat.

“Our acquisition of Xilinx marks the next leg in our journey to establish AMD as the industry’s high performance computing leader and partner of choice for the largest and most important technology companies in the world,” CEO Lisa Su said.

Digging into the deal's approval, AMD has passed the European Commission, FTC, and United Kingdom but faces regulatory approval from the likes of the Chinese government, which could pose a challenge.

Regarding a close date on the deal, management noted in the most recent quarterly report that the acquisition is still on track to be closed by year-end.

Shifting into the stock itself, 54.3% of AMD’s stock price is based on the Computing and Graphics segment according to TREFIS (@trefis).

Further searching, the Enterprise, Embedded and Semi-Custom segment makes up 43.4% and 2.4% is based on Cash and or net of debt.

Digging into the numbers AMD beat Q2 2021 expectations with an EPS of $0.63, much better than the analyst’s EPS consensus estimate of $0.54. On a year-over-year basis, EPS improved by 250%.

On the revenues front, total revenue increased by 99% year-over-year from a low $1.932 billion to a stronger $3.850 billion in Q2.

Breaking down revenues, the computing and graphics segment delivered $2.25 billion in revenue, representing 65% expansion year-over-year, while the enterprise, embedded, and semi-custom segment delivered $1.60 billion in revenue, representing a 183% improvement year-over-year.

Profits continued to improve as well in Q2, with total gross profit landing at $1.830 billion. On a year-over-year basis, gross profit improved by 116%.

Shifting into margins, AMD impressed, delivering a 48% gross margin in Q2, compared to the same time 2020 level of 44%. It is also important to note that operating margin improved significantly from a lower 9% in Q2 2020 to a solid 22%.

According to management, margins were pushed higher as a result of increased sales amongst “high-end Ryzen, Radeon, and EPYC” processors.

Exploring income, operating income increased by a sizable 380% year-over-year to $831 million while net income increased by 352% year-over-year to a strong $710 million.

Rounding out the quarter, operating expenses increased by 48% year-over-year to a higher $1.0 billion, which is to be expected given the significant level of growth.

Leadership was excited about the growth.

“We are growing significantly faster than the market with strong demand across all of our businesses,” CEO Lisa Su said.

Management is bullish on the future guiding that Q3 revenue will be $4.1 billion give or take $100 million. If management's target is met, revenue will have expanded by a strong 46% year-over-year.

Furthermore, leadership raised FY2021 guidance and now expects revenue growth of 60% year-over-year compared to prior guidance that targeted 50% growth.

Shifting into the balance sheet the numbers are solid.

Total Debt: $313 Million

Total Liabilities: $3.626 Billion

Total Assets: $10.691 Billion

Cash & Short Term Inv: $3.793 Billion

On a valuation basis, AMD does trade at a premium.

Price to Earnings: 38.77x

Forward Price to Earnings: 35.57x

Price to Sales: 9.58x

Price to Book: 18.70x

Price to Cash Flow: 39.89x

Management has been effective.

Return on Equity: 66.27%

Return on Assets: 39.69%

Return on Invested Capital: 57.38%

Given the numbers the analysts are neutral with a mean price target of $107.93/share, representing a -0.64% downside.

This high price target is $150.00/share, representing a 38.08% upside, while the low price target is $70.00/share, representing a -35.56% downside.

This big money is quite involved with 67.55% of AMD being owned by institutions. Top holders include The Vanguard Group, BlackRock Institutional Trust, and State Street Global Advisors.

On a technical basis, AMD has been running hot. According to the six-month charts the MACD is moving with significant upside momentum within a range of 4.46 down to 2.69.

The six-month charts are also indicating an RSI of 81.25 and CCI of 240.26, both of which are on the high end.

Sifting through investor sentiment the bears see risk in the Xilinx deal and a potential Intel recovery as headwinds, while the bulls see the Xilinx deal, a weak Intel, and strengthening semiconductor demand as significant growth drivers.

In short, Advanced Micro Devices ($AMD) is a strong semiconductor pick with a reliable management team, respectable balance sheet, expanding revenue, income, profit, and margins, coupled with outsized semiconductor demand and industry leading products.

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Disclaimer: This is not direct financial advice, simply an opinion based on independent research. Luke Donay does maintain holdings in $AMD.