27 ms·

AMD is now worth more than Intel

230 points by clove 5y ago

andrewmcwatters 5y ago
No, it really isn’t. A brief DCF analysis shows AMD is heavily overpriced. There is a significant difference between tech sector sentiment and earnings yield. See also: Facebook. DCF using ^TNX as discount rate: $70.93, with a 50% discount: $35.465. Current price as of Mar 5, 2022: $108.41.
- clove 5y ago
  It's not worth more because one valuation method puts the stock as overpriced? I don't follow your logic.
  - andrewmcwatters 5y ago
    If you use other valuation methods, it is even more pronounced.
    - fuckcensorship 5y ago
      Such as? What about valuation methods that show the opposite conclusion? Why are these methods less accurate than the ones you’ve chosen?
    - danielmarkbruce 5y ago
      "valuation methods" are trivially easy to use. It's figuring the inputs that are rocket science.
    - clove 5y ago
      Like what? Option pricing? Show me how option pricing puts AMD at overvalued. Pardon my French, but I think you're talking out your ass.
      - andrewmcwatters 5y ago
        No one who is investing cares about option pricing.
        clove 5y ago
        Esteemed value investor Damodaran disagrees with you: http://people.stern.nyu.edu/adamodar/pdfiles/country/option.pdf http://people.stern.nyu.edu/adamodar/pdfiles/country/option.... BTW, not only did you respond with smugness and a narcissistic sense of superiority but you ignore my question, which was an opportunity to display your expertise, were you to have any. You are out of your element with financial talk. Stick to programming.
- jeffbee 5y ago
  Your regular reminder that anyone can post on Seeking Alpha.
  - andrewmcwatters 5y ago
    Anyone can write poor articles on securities valuations, period.
- Jensson 5y ago
  The stock market is usually correct about companies, you need to have a really good explanation for why it is wrong. Lots of people thought that Facebook or Google etc were overvalued. They weren't, even if you account for the low probability of them taking the market the combined valuation of every similar company together shows they weren't overvalued.
  - andrewmcwatters 5y ago
    Yes, and those explanations are based on valuation strategies: discounted cash flow being the most generous, though also perhaps more "accurate" than other methods despite being very sensitive to changes in discount rates with historically low interest rates. If you did discounted cash flow analysis on Facebook or Google, you'd find that despite their high price to earnings ratios, their earnings produced fair valuations, not overvalued ones.
    - danielmarkbruce 5y ago
      No, they aren't. The explanations are based on different estimates of cashflows. As a concrete example - people didn't miss GOOG when it went public because of "valuation methods". People missed it because they didn't imagine that in 2022 a search engine company would be doing $75 bill a qtr of high margin revenue. People didn't miss AAPL in the late 90s because of "valuation methods", they missed it because they didn't see AAPL doing $90 bill a qtr of pretty high margin revenue. Understanding the future cashflows of a business is really difficult stuff. Playing with numbers in a spreadsheet is really easy stuff.
      - andrewmcwatters 5y ago
        I enjoy the definition of investing as an act of thorough analysis promising safety of principal and an adequate return, and all other behaviors otherwise bring speculative. If you’re paying $42.14 per dollar of earnings there is a likelihood that more often than not you’re overpaying. If you can’t pass simple mechanical litmus tests you’d better be damn sure, and frankly there just aren’t many exceptional companies where I feel damn sure about them.
- drexlspivey 5y ago
  AMD is expecting another 40-45% growth this year (it grew almost 50% in 2021) while Intel is expecting 2%-3%. Did you factor that in the brief DCF?
  - deleted 5y ago
    [deleted]
  - 01100011 5y ago
    40% growth when heading into a period of massive energy and food inflation along with a cessation of monetary stimulus? I think AMD may be a bit optimistic and isn't factoring in overall macro trends.
    - monocasa 5y ago
      That growth comes from greatly expanding into the datacenter space which has the stored capital necessary to make good on that.
    - lucianbr 5y ago
      Still a lot better than Intel with 2% growth "when heading into a period of massive energy and food inflation along with a cessation of monetary stimulus".
  - mdasen 5y ago
    Where are you seeing 40-50% growth for 2022? I'm seeing AMD projecting a 31% increase for 2022 over 2021 ($21.5B in sales vs. $16.4B in 2021 (https://www.cnbc.com/2022/02/01/amd-earnings-q4-2021.html https://www.cnbc.com/2022/02/01/amd-earnings-q4-2021.html, https://www.tomshardware.com/news/amd-2022-sales-to-hit-21-5-billion-as-it-posts-best-quarter-in-history https://www.tomshardware.com/news/amd-2022-sales-to-hit-21-5...). It looks like the "it grew almost 50% in 2021" is also underselling their 2021 a bit. That was their Q4 revenue growth year-over-year, but 2021 revenue was up 68% over 2020. I think the issue is that AMD's growth seems like it might hit significant headway. Samsung is having issues with their fabrication. We'd seen articles about AMD and Qualcomm wanting to move a lot of their chips to Samsung because TSMC was seen as too much of an Apple shop to their detriment. We've seen articles in the past month noting that Qualcomm is moving things back to TSMC from Samsung because Samsung's yields are so bad. The point here isn't that the sky is falling or anything, but that AMD does face some manufacturing constraints. We've seen reports that Intel has secured a large amount of TSMC's 3nm production and it's safe to assume Apple has as well. Qualcomm will also be competing for fab space. In that environment, will AMD be able to keep pushing its advantages? AMD has done great stuff over the past few years. Some of that has been helped by Intel's fab mishaps and TSMC's wonderful advances. That's not to downplay the many other things they've worked hard on. Many companies get openings and never take advantage of them. However, I think it's important to note that the opening is likely going to be narrowing. If Intel is able to keep AMD away from TSMC's 3nm fabrication long enough for Intel's own fabs to get back to being competitive, what does that mean for AMD? Let's say that Intel 3 launches in mid/late 2023 and it's truly equal to TSMC 3nm. Let's say that Intel keeps AMD away from TSMC 3nm until 2024. What does that do to AMD's growth? AMD is looking to launch TSMC 5nm Zen 4 processors in the second half of 2022. We've seen reports that TSMC is going to be making 3nm Intel hardware from July 2022. Do we see AMD 5nm processors in September and 3nm Intel processors in December? Again, I don't want to take anything away from the wonderful work AMD has done. At the same time, I think most people would likely agree that with equivalent fabrication, Intel is as good as AMD if not better. If Intel is able to launch 3nm and box AMD out of 3nm for a while, that can offer Intel a while to leapfrog AMD on process - and possibly enough time to make sure that Intel's fabs get back in the game. Yes, AMD had great growth in 2021 and they'll have some great growth in 2022. 2023? It seems like Intel might leapfrog AMD there. Again, the sky isn't falling and I believe that AMD will have a lot of success in the future. It's more that it seems like AMD's growth will get stymied by Intel's use of TSMC and Intel's own fabs catching up. The idea behind AMD's current valuation is that they will become as big as Intel and even a lot bigger over the next several years. However, even with amazing growth in 2022, they won't become as big as Intel. In 2023, it seems like a lot of AMD's advantages turn into Intel advantages as Intel launches on TSMC's 3nm process. 2023 seems like it'll be a great growth year for Intel - at the expense of AMD's growth. I think AMD is in a strong position to continue being a great company with great products. I just think their growth slows as Intel fixes its problems. Of course, this all assumes that Intel fixes its problems.
- mgh2 5y ago
  Maybe this is stock pumping: announced not long ago, perhaps analysts think that repeated exposure will excite the bulls https://news.ycombinator.com/item?id=30454707 https://news.ycombinator.com/item?id=30454707
  - clove 5y ago
    AMD just surpassed Intel in its market cap for the first time in history. It's an inflection point in the AMD-Intel rivalry, and many people noticed.
- danielmarkbruce 5y ago
  If it's this easy, go start a hedge fund. You are literally leaving billions of dollars on the table by not. An average first year finance student can do a "brief DCF analysis". They put garbage in for the cashflows and get garbage out for the valuation - and then write it up with high precision.
  - adenozine 5y ago
    Not the person you're replying to, but I just wanted to point out: andrewmcwatters.com boasts a $1400/day rate. That's not billions, but is still quite a respectable rate for their services. I assume they're well respected and trusted by their clients. Hoever, in your comment here, you've mistaken some napkin math for a hard and fast assertion on their part and I think it's a little unfair. There's far more to a company's existence than DCF, all the poster did was point that out. It's obviously not that easy to run a hedge fund, but that's no excuse for sloppy facts here, or anywhere else for that matter.
    - matthewaveryusa 5y ago
      As a counter-point AMD as a datacenter chip provider grew 100% last year and investors like myself view it as a catalyst of growth that begets more growth. More simply put: they are getting their foot in lots of doors. it’s stupendously difficult to valuate that just looking at the financials. AMDs renewed brand recognition also allows it to trade at better multiples
    - CyberDildonics 5y ago
      They can make more than that if they can predict the future, but there's a big difference between predicting the future and selling the future.
    - danielmarkbruce 5y ago
      It's not the napkin math which is the issue - it's stating it as though future earnings are an obviously known, agreed upon quantity. Napkin math of "I think they can sell x units at y margin with z fixed costs because of a, b and c, and I think that will grow at g because of whatever and my back of the envelope says that is worth $" would be great. Ie, real insight. Low precision, high accuracy insight with napkin math would have been wonderful.
- shoo 5y ago
  If you have the time, please share a bit more detail about the modelling approach + assumptions used for the DCF. I'd find that pretty interesting and suspect others would also. Whenever I've tried to run my own DCF analyses, I've found some parameters and modelling assumptions have a major impact on the resulting estimate. Discount rate parameter is one. The model and assumptions used to estimate revenue and operating/net profit when extrapolating 5 - 10 - 20 years into the future also make a large impact. Suppose in our DCF analysis we aspire to forecast company performance over a 25 year time horizon and then discount the profits back to some NPV. Then we need some way of extrapolating the company's revenue for the next 25 years. One way to do this could be to put together some kind causal model where we identify the major factors that contribute toward generating revenue -- maybe this could break down revenue by segment or major product line, and attempt to predict supply, demand, price points, production capacity etc for each product line, using knowledge of how the industry works. Then we'd have to figure out how to forecast all of those drivers of revenue, e.g. forecasting the capex used to build new plant to increase capacity & so on. Another way could be to ignore trying to build a semi-plausible generative model for revenue and instead just do some kind of simple empirical model only -- e.g. fit a regression model to the trailing 5 years of historical revenue numbers or annual revenue growth rates combined with some kind of prior to force revenue growth to decay toward something unobjectionable the further into the future we project. I've got some code that automates calculating a DCF. I've adopted some form of the latter approach to forecasting revenue -- fit a simple empirical statistical model to historical revenue -- it isn't very intellectually satisfying as it doesn't incorporate any real world knowledge about the causes of revenue in specific industries or companies. So, many forecasts of revenue generated by this approach will be quite wrong, leading to quite misleading DCF estimates. But on the other hand, I can run my kind of dumb DCF analysis in a completely automated way using inputs that are reported in company financials in a standard format, which is much quicker and easier. When i run my crude DCF analysis over INTC and AMD -- using a somewhat arbitrary 6% discount rate -- I get the estimates INTC -- priced by mr market at $48.07 / share quantile 0.2 $87 / share quantile 0.5 $140 / share quantile 0.8 $196 / share AMD -- priced by mr market at $108.41 / share quantile 0.2 $42 / share quantile 0.5 $77 / share quantile 0.8 $121 / share the "quantiles" are different scenarios of assumed future revenue growth trajectories. quantile 0.2 assumes relatively poor revenue growth. quantile 0.8 assumes relatively great revenue growth. quantile 0.50 is some kind of midline. market valuation for AMD is either based on something that isn't discounted future earnings, or market's forecast for how future earnings will evolve is very different to my crude backward-looking model.
- xwdv 5y ago
  I hope no one truly listens to this guy. He’s a number cruncher who thinks running calculations is all you need to invest. Listen to people who actually understand the market and how to profit from its sentiments, not math. The only “glory” these guys ever see is when stuff crashes and they say “I told you so”. Who wants that???
01100011 5y ago
If China moves on Taiwan AMD will go to nearly zero. If you're invested in AMD, either via equities or employment, make sure to hedge your position. Edit: Curious if the downvotes are because you think AMD doesn't need TSMC, because you think China will absolutely never invade Taiwan, or if you think AMD can find another fab within a year or two.
- amelius 5y ago
  After recent events, that will not happen.
  - vkou 5y ago
    Sanctioning Russia is easy for the West. Sanctioning China is a non-starter.
    - exdsq 5y ago
      Maybe, but Taiwan has a treaty with the US and other countries meaning it’d escalate out of the gate. Ukraine, sadly, had none.
      - jlmorton 5y ago
        Taiwan does not have any treaties with the United States, because the United States does not recognize Taiwan as a country, or have normal diplomatic relations with Taiwan, ever since the Taiwan Relations Act of 1979. The US _did_ have a mutual defense treaty with Taiwan, but it was terminated by the Taiwan Relations Act after the US initiated diplomatic relations with the People's Republic of China on Jan 1st, 1979.
    - deleted 5y ago
      [deleted]
    - _8j50 5y ago
      Disagree. War with China is worse than sanctioning China. Abandoning Taiwan means deatabilizing the region (Japan militarizes, China opposes Japan. NK does whatever they want. South china see conflict leads to vietnam,philipines joining,etc...). China is very important but the shipping lanes to SE asia and regional stability is more valuable. You can sanction China and get in a sanction war with them until one side gives in. Or a trade war like trump tried. Their focus however is to win the war before it starts unlike the US which is to win the war after it starts (imo). If it gets to a full in sanction like russia, the western economy will tak a massive hit, but it isn' beyond recovery and might actually be good to force resilent supply chains. Especially with silicon fab.
gnicholas 5y ago
How much of this is due to Apple's shift away from Intel chips?
- trevortheblack 5y ago
  Very little. Correlation. Not causation. Apple shied away form Intel due to their failure at landing mobile chips. Intel failed at mobile due to their (then) sales-focused (rather than engineer-focused) regimen. Source: I worked at intel on the Mac chips for a year and a half
  - causality0 5y ago
    Yeah. Just look at the performance per dollar ratio on mobile Intel chips right around Cherry Trail. Bay Trail and Cherry Trail lines were very good deals, and then core-m threw all that right out the window.
  - allie1 5y ago
    What are your thoughts on Intel's new management?
  - bredren 5y ago
    What was it like working on these projects? Was it clear that the performance per watt was falling behind Apple’s expectations, and if so how was that felt in your workgroup?
- jlmorton 5y ago
  Very little is due to Apple's shift away from Intel chips on Mac, but an enormous amount is due to Apple's shift to TSMC-manufactured Apple Silicon on iPhone. iPhone is largely what created the sustained, predictable volumes for high-end chips that has allowed TSMC flourish, and TSMC is what has allowed AMD's strategy to take flight. If AMD was stuck with GlobalFoundry, they would be nowhere.
- AtlasBarfed 5y ago
  Do you mean the revenue loss of Apple's business, or Apple showing ARM is so capable in desktop and auguring the end of x86 dominance in server/desktop? In five years or so (ok maybe 7 or 8) Intel turned a two year lead in fab technology to being behind by two years, so there's that too. Utter inability to break into the mobile market, ARM or otherwise. Failed attempts at discrete graphics and not having something ready for the rise of crypto/AI. XPoint was basically a failuer, SSD dominance taken from them. It shows both an empty cupboard of in house talent and technology and a zombie management structure.
kcb 5y ago
AMD = AMD + Xilinx
- deelowe 5y ago
  Intel = intel + altera
  - bloodyplonker22 5y ago
    + all the other failed acquisitions
    - threatripper 5y ago
      They succeeded in failing, meaning they are no longer a threat.
    - devoutsalsa 5y ago
      Are you trying to say that McAfee is not the crown jewel of Intel’s empire?
whack 5y ago
This seems to be heavily driven by the difference in their PE ratios. Intel's PE ratio is ~10, and AMD's is ~40. For context, AMD's quarterly revenue is ~5B and Intel's is ~$20B. AMD's quarterly net income is ~$1B and Intel's is ~$4.5B. I'm surprised that AMD is valued higher, despite their revenue and profits being so much smaller. The financial markets are in essence betting that AMD will be able to achieve revenue/profit parity with Intel, despite the huge lead Intel currently has. It will be very interesting to see if that comes to pass. I remember the days when AMD seemed to be on the verge of bankruptcy, and there was talk of Intel simply buying AMD since it was so cheap. Presumably that didn't happen because Intel feared anti-trust laws if it purchased its main/only competitor. Kudos to AMD for the turnaround - this competition is sure to be benefit the wider industry.
- omegalulw 5y ago
  Financial markets almost always tend to price future growth in, it's not really a surprise.
- cinntaile 5y ago
  People keep forgetting that AMD is fabless, while Intel is not. You can't just compare their numbers without taking this important difference into consideration.
  - whack 5y ago
    Stock valuations are driven primarily by present and future profits. Given that their profits are primarily coming from extremely similar markets, you absolutely can and should compare their numbers, especially their earnings.
    - cinntaile 5y ago
      I don't see how this disagrees with what I said. If you have huge capital expenses because you have your own fabs this will have implications for your future profit potential.
    - lobocinza 5y ago
klelatti 5y ago
And each worth less than half of TSMC or Nvidia. Stepping back, AMD has process advantage in x86 via TSMC and is executing very well. Clearly major opportunity to grow with low risk at Intel’s expense. Meanwhile Intel has to implement some big changes to stay competitive, has major capex needs and is trying to break into markets where it isn’t present (or competitive) which is clearly risky.
- colinmhayes 5y ago
  Intel's $20 billion profit is quite a bit higher than AMDs entire revenue. The idea that amd's growth opportunities and Intels failures are so assured that amd should be worth more than Intel is laughable.
  - klelatti 5y ago
    Profit isn’t the only measure - ROC is also highly relevant for companies with billions in CapEx. You can make a ton of profit with a low ROC and you will deservedly get a low valuation. In any event no one is saying anything is assured only that some things are more likely or risky than others. Intel has a lot to do and recent execution has been weak. You may think that will change but the market will need evidence. AMD on the other hand is in the opposite position and gets credit for that. Also you may think it’s laughable but there is no should about it - it’s a statement of fact that AMD’s market cap is more than Intel’s and that fact also plays to AMD’s advantage in some ways (acquisitions for example).
    - deleted 5y ago
      [deleted]
    - Osiris 5y ago
      Can you expand the ROC acronym for people that are unfamiliar?
      - klelatti 5y ago
        Sorry - Return on Capital. The point being that Intel can make huge profits but if that all has to be reinvested into new fabs and the market is sceptical of the return on that investment then they won't get much credit for those profits.
esistgut 5y ago
This may be a naive tough but the unfolding of the ukranian events had me wondering again and again if more attention should be used when buying items coming from China and TSMC. The rise of the Ryzen CPUs had me switch to AMD from Intel after many years. Next time I could actually prefer the worst CPU as long as it is built in the west. Is this an oversemplification? Am I wrong? Anyone here share similar toughts?
- threatripper 5y ago
  If country A depends on the products of country B and vice versa, then a war between A and B may be ill advised. Untangling your supply chain is a prerequisite for successful war. To add to that: If country A depends on products of country B, then country C could want to attack country B to hurt country A.
- panda88888 5y ago
  TSMC is actually a Taiwanese company and its most advanced fabs are in Taiwan, a democratic country (more or less, with its own passport, military, government, etc) that is not under the control of China.
- lobocinza 5y ago
  Doesn't make sense to not buy from AMD in this case. CPUs are one of the few things that aren't from communist China.
systemBuilder 5y ago
Up until now AMD has benefitted from a great deal of animosity towards Intel by absolutely everyone in Silicon Valley including Google Facebook and Apple. It didn't take much to realize that if you were building a laptop or building a data center intel was ripping you off. I know my employer (Google search) felt this way! From Haswell (4000-series) to the 12000 series I would say there was maybe one generation of improvement in between and six marketing generations where nothing got better nothing got faster but prices were outrageous -$600 for a slow hot MacBook cpu, and everything got new marketing names! So the industry has been desperate for an alternative to Intel since 2009 and AMD has finally delivered on the promise by building data center chips and adapting them to laptop use. I was an early AMD investor because of rx480 at $3.50 by the way but I sold out at $10.50. From here on AMD will truly have to earn its keep and things will be a lot tougher as they are no longer the scrappy underdog anymore!
mhh__ 5y ago
I don't think Intel will dominate like they did over the last decade but if their next process is good the idea that AMD is actually producing more value than them I think is quite stupid and driven by idiots who don't actually understand the chip business. Good news for consumers either way though. Intel already have their crown back in the midrange at least.
- donmcronald 5y ago
  I don't understand the stock valuations at all. I'm not a huge finance person, but Intel has a PE of <10 and pays a 3% dividend. AMD has a PE >40 and no dividend. Intel has their own manufacturing capacity and hasn't done a terrible job of catching back up to AMD. I can see if there's worry about ARM eating into Intel profits, but that should affect AMD too. Toss in global politics with TSMC and Intel looks like a much safer bet long term. What makes AMD more attractive from an investment point of view? There's got to be some reasoning for it and I'd love to understand it.
  - nly 5y ago
    A 40x P/E just shows the market pricing in the expectation that its AMDs earnings are going to continue to grow (probably by eating market share). Imho paying a dividend is a pretty bad sign in this industry - they should be funneling everything in to R&D. Their 10x P/E reflects a belief that their earnings are going to remain relatively stagnant. See these forward looking earnings estimates: https://www.marketbeat.com/stocks/NASDAQ/INTC/earnings/ https://www.marketbeat.com/stocks/NASDAQ/INTC/earnings/ https://www.marketbeat.com/stocks/NASDAQ/AMD/earnings/ https://www.marketbeat.com/stocks/NASDAQ/AMD/earnings/ That said, I'm with you, I'd rather be holding Intel in this market.
  - mhh__ 5y ago
    AMD is a meme stock, that's basically it. Unlike most meme stocks however AMD is a good business regardless
  - ksec 5y ago
    And you may be surprised that 80% of investor have absolutely zero understanding of any business. Looking at numbers is all they do. They may understand finance, but not business. Or at least their understanding are very shallow. Right now the bet, or at least the market suggest, Intel wont be able to catch up to TSMC in terms of technological leads, and even if they do, they wont be able to do it as cheaply as TSMC. x86 is being eroded by ARM, and even ARM are not safe from the Riscy Silver Bullet. The strange thing about the market in the past 20-30 years is how they view manufacturing and machinery as liability. For Intel without the technological moat ( in terms of leading edge ), Fabs are not viewed favourably by the market. Does it makes sense, of course not. But the the markets can remain irrational longer than you can remain solvent. Intel is advancing their work far quicker than I could expect. While catching up to TSMC is still a tall order, at least they are finally innovating. Instead of saying No to their Custom Foundry customers they are now being challenged to deliver exactly what their customer demands.
rbrbr 5y ago
pointyfence 5y ago
The market, net, thinks that Intel is going to shrink from a profitability perspective. In 2022, Intel is going to have its first negative free cash flow in at least 15 years. It's going to have negligible free cash flow for the two years after. All of its cash flow and then some is going to build out fab capacity and node tech as it tries to dramatically increase capacity for its design business and its foundry business. Meanwhile, their most lucrative business segments, in particular datacenter, are getting gobbled up quickly by the competition. In Q1, Intel decreased -5% in cloud YOY despite that segment growing quickly. If you believe that everything will go well with Intel, then this is money well spent and the stock is cheap. But given their historic difficulties and the quality and quantity of their competition in XPU design and manufacturing, there's a meaningful chance that their profitability will be greatly diminished.

230 points by clove 5y ago

No, it really isn’t. A brief DCF analysis shows AMD is heavily overpriced. There is a significant difference between tech sector sentiment and earnings yield. See also: Facebook. DCF using ^TNX as discount rate: $70.93, with a 50% discount: $35.465. Current price as of Mar 5, 2022: $108.41.

clove 5y ago
It's not worth more because one valuation method puts the stock as overpriced? I don't follow your logic.
- andrewmcwatters 5y ago
  If you use other valuation methods, it is even more pronounced.
  - fuckcensorship 5y ago
    Such as? What about valuation methods that show the opposite conclusion? Why are these methods less accurate than the ones you’ve chosen?
  - danielmarkbruce 5y ago
    "valuation methods" are trivially easy to use. It's figuring the inputs that are rocket science.
  - clove 5y ago
    Like what? Option pricing? Show me how option pricing puts AMD at overvalued. Pardon my French, but I think you're talking out your ass.
    - andrewmcwatters 5y ago
      No one who is investing cares about option pricing.
      - clove 5y ago
        Esteemed value investor Damodaran disagrees with you: http://people.stern.nyu.edu/adamodar/pdfiles/country/option.pdf http://people.stern.nyu.edu/adamodar/pdfiles/country/option.... BTW, not only did you respond with smugness and a narcissistic sense of superiority but you ignore my question, which was an opportunity to display your expertise, were you to have any. You are out of your element with financial talk. Stick to programming.
jeffbee 5y ago
Your regular reminder that anyone can post on Seeking Alpha.
- andrewmcwatters 5y ago
  Anyone can write poor articles on securities valuations, period.
Jensson 5y ago
The stock market is usually correct about companies, you need to have a really good explanation for why it is wrong. Lots of people thought that Facebook or Google etc were overvalued. They weren't, even if you account for the low probability of them taking the market the combined valuation of every similar company together shows they weren't overvalued.
- andrewmcwatters 5y ago
  Yes, and those explanations are based on valuation strategies: discounted cash flow being the most generous, though also perhaps more "accurate" than other methods despite being very sensitive to changes in discount rates with historically low interest rates. If you did discounted cash flow analysis on Facebook or Google, you'd find that despite their high price to earnings ratios, their earnings produced fair valuations, not overvalued ones.
  - danielmarkbruce 5y ago
    No, they aren't. The explanations are based on different estimates of cashflows. As a concrete example - people didn't miss GOOG when it went public because of "valuation methods". People missed it because they didn't imagine that in 2022 a search engine company would be doing $75 bill a qtr of high margin revenue. People didn't miss AAPL in the late 90s because of "valuation methods", they missed it because they didn't see AAPL doing $90 bill a qtr of pretty high margin revenue. Understanding the future cashflows of a business is really difficult stuff. Playing with numbers in a spreadsheet is really easy stuff.
    - andrewmcwatters 5y ago
      I enjoy the definition of investing as an act of thorough analysis promising safety of principal and an adequate return, and all other behaviors otherwise bring speculative. If you’re paying $42.14 per dollar of earnings there is a likelihood that more often than not you’re overpaying. If you can’t pass simple mechanical litmus tests you’d better be damn sure, and frankly there just aren’t many exceptional companies where I feel damn sure about them.
drexlspivey 5y ago
AMD is expecting another 40-45% growth this year (it grew almost 50% in 2021) while Intel is expecting 2%-3%. Did you factor that in the brief DCF?
- deleted 5y ago
  [deleted]
- 01100011 5y ago
  40% growth when heading into a period of massive energy and food inflation along with a cessation of monetary stimulus? I think AMD may be a bit optimistic and isn't factoring in overall macro trends.
  - monocasa 5y ago
    That growth comes from greatly expanding into the datacenter space which has the stored capital necessary to make good on that.
  - lucianbr 5y ago
    Still a lot better than Intel with 2% growth "when heading into a period of massive energy and food inflation along with a cessation of monetary stimulus".
- mdasen 5y ago
  Where are you seeing 40-50% growth for 2022? I'm seeing AMD projecting a 31% increase for 2022 over 2021 ($21.5B in sales vs. $16.4B in 2021 (https://www.cnbc.com/2022/02/01/amd-earnings-q4-2021.html https://www.cnbc.com/2022/02/01/amd-earnings-q4-2021.html, https://www.tomshardware.com/news/amd-2022-sales-to-hit-21-5-billion-as-it-posts-best-quarter-in-history https://www.tomshardware.com/news/amd-2022-sales-to-hit-21-5...). It looks like the "it grew almost 50% in 2021" is also underselling their 2021 a bit. That was their Q4 revenue growth year-over-year, but 2021 revenue was up 68% over 2020. I think the issue is that AMD's growth seems like it might hit significant headway. Samsung is having issues with their fabrication. We'd seen articles about AMD and Qualcomm wanting to move a lot of their chips to Samsung because TSMC was seen as too much of an Apple shop to their detriment. We've seen articles in the past month noting that Qualcomm is moving things back to TSMC from Samsung because Samsung's yields are so bad. The point here isn't that the sky is falling or anything, but that AMD does face some manufacturing constraints. We've seen reports that Intel has secured a large amount of TSMC's 3nm production and it's safe to assume Apple has as well. Qualcomm will also be competing for fab space. In that environment, will AMD be able to keep pushing its advantages? AMD has done great stuff over the past few years. Some of that has been helped by Intel's fab mishaps and TSMC's wonderful advances. That's not to downplay the many other things they've worked hard on. Many companies get openings and never take advantage of them. However, I think it's important to note that the opening is likely going to be narrowing. If Intel is able to keep AMD away from TSMC's 3nm fabrication long enough for Intel's own fabs to get back to being competitive, what does that mean for AMD? Let's say that Intel 3 launches in mid/late 2023 and it's truly equal to TSMC 3nm. Let's say that Intel keeps AMD away from TSMC 3nm until 2024. What does that do to AMD's growth? AMD is looking to launch TSMC 5nm Zen 4 processors in the second half of 2022. We've seen reports that TSMC is going to be making 3nm Intel hardware from July 2022. Do we see AMD 5nm processors in September and 3nm Intel processors in December? Again, I don't want to take anything away from the wonderful work AMD has done. At the same time, I think most people would likely agree that with equivalent fabrication, Intel is as good as AMD if not better. If Intel is able to launch 3nm and box AMD out of 3nm for a while, that can offer Intel a while to leapfrog AMD on process - and possibly enough time to make sure that Intel's fabs get back in the game. Yes, AMD had great growth in 2021 and they'll have some great growth in 2022. 2023? It seems like Intel might leapfrog AMD there. Again, the sky isn't falling and I believe that AMD will have a lot of success in the future. It's more that it seems like AMD's growth will get stymied by Intel's use of TSMC and Intel's own fabs catching up. The idea behind AMD's current valuation is that they will become as big as Intel and even a lot bigger over the next several years. However, even with amazing growth in 2022, they won't become as big as Intel. In 2023, it seems like a lot of AMD's advantages turn into Intel advantages as Intel launches on TSMC's 3nm process. 2023 seems like it'll be a great growth year for Intel - at the expense of AMD's growth. I think AMD is in a strong position to continue being a great company with great products. I just think their growth slows as Intel fixes its problems. Of course, this all assumes that Intel fixes its problems.
mgh2 5y ago
Maybe this is stock pumping: announced not long ago, perhaps analysts think that repeated exposure will excite the bulls https://news.ycombinator.com/item?id=30454707 https://news.ycombinator.com/item?id=30454707
- clove 5y ago
  AMD just surpassed Intel in its market cap for the first time in history. It's an inflection point in the AMD-Intel rivalry, and many people noticed.
danielmarkbruce 5y ago
If it's this easy, go start a hedge fund. You are literally leaving billions of dollars on the table by not. An average first year finance student can do a "brief DCF analysis". They put garbage in for the cashflows and get garbage out for the valuation - and then write it up with high precision.
- adenozine 5y ago
  Not the person you're replying to, but I just wanted to point out: andrewmcwatters.com boasts a $1400/day rate. That's not billions, but is still quite a respectable rate for their services. I assume they're well respected and trusted by their clients. Hoever, in your comment here, you've mistaken some napkin math for a hard and fast assertion on their part and I think it's a little unfair. There's far more to a company's existence than DCF, all the poster did was point that out. It's obviously not that easy to run a hedge fund, but that's no excuse for sloppy facts here, or anywhere else for that matter.
  - matthewaveryusa 5y ago
    As a counter-point AMD as a datacenter chip provider grew 100% last year and investors like myself view it as a catalyst of growth that begets more growth. More simply put: they are getting their foot in lots of doors. it’s stupendously difficult to valuate that just looking at the financials. AMDs renewed brand recognition also allows it to trade at better multiples
  - CyberDildonics 5y ago
    They can make more than that if they can predict the future, but there's a big difference between predicting the future and selling the future.
  - danielmarkbruce 5y ago
    It's not the napkin math which is the issue - it's stating it as though future earnings are an obviously known, agreed upon quantity. Napkin math of "I think they can sell x units at y margin with z fixed costs because of a, b and c, and I think that will grow at g because of whatever and my back of the envelope says that is worth $" would be great. Ie, real insight. Low precision, high accuracy insight with napkin math would have been wonderful.
shoo 5y ago
If you have the time, please share a bit more detail about the modelling approach + assumptions used for the DCF. I'd find that pretty interesting and suspect others would also. Whenever I've tried to run my own DCF analyses, I've found some parameters and modelling assumptions have a major impact on the resulting estimate. Discount rate parameter is one. The model and assumptions used to estimate revenue and operating/net profit when extrapolating 5 - 10 - 20 years into the future also make a large impact. Suppose in our DCF analysis we aspire to forecast company performance over a 25 year time horizon and then discount the profits back to some NPV. Then we need some way of extrapolating the company's revenue for the next 25 years. One way to do this could be to put together some kind causal model where we identify the major factors that contribute toward generating revenue -- maybe this could break down revenue by segment or major product line, and attempt to predict supply, demand, price points, production capacity etc for each product line, using knowledge of how the industry works. Then we'd have to figure out how to forecast all of those drivers of revenue, e.g. forecasting the capex used to build new plant to increase capacity & so on. Another way could be to ignore trying to build a semi-plausible generative model for revenue and instead just do some kind of simple empirical model only -- e.g. fit a regression model to the trailing 5 years of historical revenue numbers or annual revenue growth rates combined with some kind of prior to force revenue growth to decay toward something unobjectionable the further into the future we project. I've got some code that automates calculating a DCF. I've adopted some form of the latter approach to forecasting revenue -- fit a simple empirical statistical model to historical revenue -- it isn't very intellectually satisfying as it doesn't incorporate any real world knowledge about the causes of revenue in specific industries or companies. So, many forecasts of revenue generated by this approach will be quite wrong, leading to quite misleading DCF estimates. But on the other hand, I can run my kind of dumb DCF analysis in a completely automated way using inputs that are reported in company financials in a standard format, which is much quicker and easier. When i run my crude DCF analysis over INTC and AMD -- using a somewhat arbitrary 6% discount rate -- I get the estimates INTC -- priced by mr market at $48.07 / share quantile 0.2 $87 / share quantile 0.5 $140 / share quantile 0.8 $196 / share AMD -- priced by mr market at $108.41 / share quantile 0.2 $42 / share quantile 0.5 $77 / share quantile 0.8 $121 / share the "quantiles" are different scenarios of assumed future revenue growth trajectories. quantile 0.2 assumes relatively poor revenue growth. quantile 0.8 assumes relatively great revenue growth. quantile 0.50 is some kind of midline. market valuation for AMD is either based on something that isn't discounted future earnings, or market's forecast for how future earnings will evolve is very different to my crude backward-looking model.
xwdv 5y ago
I hope no one truly listens to this guy. He’s a number cruncher who thinks running calculations is all you need to invest. Listen to people who actually understand the market and how to profit from its sentiments, not math. The only “glory” these guys ever see is when stuff crashes and they say “I told you so”. Who wants that???

01100011 5y ago

If China moves on Taiwan AMD will go to nearly zero. If you're invested in AMD, either via equities or employment, make sure to hedge your position. Edit: Curious if the downvotes are because you think AMD doesn't need TSMC, because you think China will absolutely never invade Taiwan, or if you think AMD can find another fab within a year or two.

amelius 5y ago
After recent events, that will not happen.
- vkou 5y ago
  Sanctioning Russia is easy for the West. Sanctioning China is a non-starter.
  - exdsq 5y ago
    Maybe, but Taiwan has a treaty with the US and other countries meaning it’d escalate out of the gate. Ukraine, sadly, had none.
    - jlmorton 5y ago
      Taiwan does not have any treaties with the United States, because the United States does not recognize Taiwan as a country, or have normal diplomatic relations with Taiwan, ever since the Taiwan Relations Act of 1979. The US _did_ have a mutual defense treaty with Taiwan, but it was terminated by the Taiwan Relations Act after the US initiated diplomatic relations with the People's Republic of China on Jan 1st, 1979.
  - deleted 5y ago
    [deleted]
  - _8j50 5y ago
    Disagree. War with China is worse than sanctioning China. Abandoning Taiwan means deatabilizing the region (Japan militarizes, China opposes Japan. NK does whatever they want. South china see conflict leads to vietnam,philipines joining,etc...). China is very important but the shipping lanes to SE asia and regional stability is more valuable. You can sanction China and get in a sanction war with them until one side gives in. Or a trade war like trump tried. Their focus however is to win the war before it starts unlike the US which is to win the war after it starts (imo). If it gets to a full in sanction like russia, the western economy will tak a massive hit, but it isn' beyond recovery and might actually be good to force resilent supply chains. Especially with silicon fab.

gnicholas 5y ago

How much of this is due to Apple's shift away from Intel chips?

trevortheblack 5y ago
Very little. Correlation. Not causation. Apple shied away form Intel due to their failure at landing mobile chips. Intel failed at mobile due to their (then) sales-focused (rather than engineer-focused) regimen. Source: I worked at intel on the Mac chips for a year and a half
- causality0 5y ago
  Yeah. Just look at the performance per dollar ratio on mobile Intel chips right around Cherry Trail. Bay Trail and Cherry Trail lines were very good deals, and then core-m threw all that right out the window.
- allie1 5y ago
  What are your thoughts on Intel's new management?
- bredren 5y ago
  What was it like working on these projects? Was it clear that the performance per watt was falling behind Apple’s expectations, and if so how was that felt in your workgroup?
jlmorton 5y ago
Very little is due to Apple's shift away from Intel chips on Mac, but an enormous amount is due to Apple's shift to TSMC-manufactured Apple Silicon on iPhone. iPhone is largely what created the sustained, predictable volumes for high-end chips that has allowed TSMC flourish, and TSMC is what has allowed AMD's strategy to take flight. If AMD was stuck with GlobalFoundry, they would be nowhere.
AtlasBarfed 5y ago
Do you mean the revenue loss of Apple's business, or Apple showing ARM is so capable in desktop and auguring the end of x86 dominance in server/desktop? In five years or so (ok maybe 7 or 8) Intel turned a two year lead in fab technology to being behind by two years, so there's that too. Utter inability to break into the mobile market, ARM or otherwise. Failed attempts at discrete graphics and not having something ready for the rise of crypto/AI. XPoint was basically a failuer, SSD dominance taken from them. It shows both an empty cupboard of in house talent and technology and a zombie management structure.

kcb 5y ago

AMD = AMD + Xilinx

deelowe 5y ago
Intel = intel + altera
- bloodyplonker22 5y ago
  + all the other failed acquisitions
  - threatripper 5y ago
    They succeeded in failing, meaning they are no longer a threat.
  - devoutsalsa 5y ago
    Are you trying to say that McAfee is not the crown jewel of Intel’s empire?

whack 5y ago

This seems to be heavily driven by the difference in their PE ratios. Intel's PE ratio is ~10, and AMD's is ~40. For context, AMD's quarterly revenue is ~5B and Intel's is ~$20B. AMD's quarterly net income is ~$1B and Intel's is ~$4.5B. I'm surprised that AMD is valued higher, despite their revenue and profits being so much smaller. The financial markets are in essence betting that AMD will be able to achieve revenue/profit parity with Intel, despite the huge lead Intel currently has. It will be very interesting to see if that comes to pass. I remember the days when AMD seemed to be on the verge of bankruptcy, and there was talk of Intel simply buying AMD since it was so cheap. Presumably that didn't happen because Intel feared anti-trust laws if it purchased its main/only competitor. Kudos to AMD for the turnaround - this competition is sure to be benefit the wider industry.

omegalulw 5y ago
Financial markets almost always tend to price future growth in, it's not really a surprise.
cinntaile 5y ago
People keep forgetting that AMD is fabless, while Intel is not. You can't just compare their numbers without taking this important difference into consideration.
- whack 5y ago
  Stock valuations are driven primarily by present and future profits. Given that their profits are primarily coming from extremely similar markets, you absolutely can and should compare their numbers, especially their earnings.
  - cinntaile 5y ago
    I don't see how this disagrees with what I said. If you have huge capital expenses because you have your own fabs this will have implications for your future profit potential.
  - lobocinza 5y ago

klelatti 5y ago

And each worth less than half of TSMC or Nvidia. Stepping back, AMD has process advantage in x86 via TSMC and is executing very well. Clearly major opportunity to grow with low risk at Intel’s expense. Meanwhile Intel has to implement some big changes to stay competitive, has major capex needs and is trying to break into markets where it isn’t present (or competitive) which is clearly risky.

colinmhayes 5y ago
Intel's $20 billion profit is quite a bit higher than AMDs entire revenue. The idea that amd's growth opportunities and Intels failures are so assured that amd should be worth more than Intel is laughable.
- klelatti 5y ago
  Profit isn’t the only measure - ROC is also highly relevant for companies with billions in CapEx. You can make a ton of profit with a low ROC and you will deservedly get a low valuation. In any event no one is saying anything is assured only that some things are more likely or risky than others. Intel has a lot to do and recent execution has been weak. You may think that will change but the market will need evidence. AMD on the other hand is in the opposite position and gets credit for that. Also you may think it’s laughable but there is no should about it - it’s a statement of fact that AMD’s market cap is more than Intel’s and that fact also plays to AMD’s advantage in some ways (acquisitions for example).
  - deleted 5y ago
    [deleted]
  - Osiris 5y ago
    Can you expand the ROC acronym for people that are unfamiliar?
    - klelatti 5y ago
      Sorry - Return on Capital. The point being that Intel can make huge profits but if that all has to be reinvested into new fabs and the market is sceptical of the return on that investment then they won't get much credit for those profits.

esistgut 5y ago

This may be a naive tough but the unfolding of the ukranian events had me wondering again and again if more attention should be used when buying items coming from China and TSMC. The rise of the Ryzen CPUs had me switch to AMD from Intel after many years. Next time I could actually prefer the worst CPU as long as it is built in the west. Is this an oversemplification? Am I wrong? Anyone here share similar toughts?

threatripper 5y ago
If country A depends on the products of country B and vice versa, then a war between A and B may be ill advised. Untangling your supply chain is a prerequisite for successful war. To add to that: If country A depends on products of country B, then country C could want to attack country B to hurt country A.
panda88888 5y ago
TSMC is actually a Taiwanese company and its most advanced fabs are in Taiwan, a democratic country (more or less, with its own passport, military, government, etc) that is not under the control of China.
lobocinza 5y ago
Doesn't make sense to not buy from AMD in this case. CPUs are one of the few things that aren't from communist China.

systemBuilder 5y ago

Up until now AMD has benefitted from a great deal of animosity towards Intel by absolutely everyone in Silicon Valley including Google Facebook and Apple. It didn't take much to realize that if you were building a laptop or building a data center intel was ripping you off. I know my employer (Google search) felt this way! From Haswell (4000-series) to the 12000 series I would say there was maybe one generation of improvement in between and six marketing generations where nothing got better nothing got faster but prices were outrageous -$600 for a slow hot MacBook cpu, and everything got new marketing names! So the industry has been desperate for an alternative to Intel since 2009 and AMD has finally delivered on the promise by building data center chips and adapting them to laptop use. I was an early AMD investor because of rx480 at $3.50 by the way but I sold out at $10.50. From here on AMD will truly have to earn its keep and things will be a lot tougher as they are no longer the scrappy underdog anymore!

mhh__ 5y ago

I don't think Intel will dominate like they did over the last decade but if their next process is good the idea that AMD is actually producing more value than them I think is quite stupid and driven by idiots who don't actually understand the chip business. Good news for consumers either way though. Intel already have their crown back in the midrange at least.

donmcronald 5y ago
I don't understand the stock valuations at all. I'm not a huge finance person, but Intel has a PE of <10 and pays a 3% dividend. AMD has a PE >40 and no dividend. Intel has their own manufacturing capacity and hasn't done a terrible job of catching back up to AMD. I can see if there's worry about ARM eating into Intel profits, but that should affect AMD too. Toss in global politics with TSMC and Intel looks like a much safer bet long term. What makes AMD more attractive from an investment point of view? There's got to be some reasoning for it and I'd love to understand it.
- nly 5y ago
  A 40x P/E just shows the market pricing in the expectation that its AMDs earnings are going to continue to grow (probably by eating market share). Imho paying a dividend is a pretty bad sign in this industry - they should be funneling everything in to R&D. Their 10x P/E reflects a belief that their earnings are going to remain relatively stagnant. See these forward looking earnings estimates: https://www.marketbeat.com/stocks/NASDAQ/INTC/earnings/ https://www.marketbeat.com/stocks/NASDAQ/INTC/earnings/ https://www.marketbeat.com/stocks/NASDAQ/AMD/earnings/ https://www.marketbeat.com/stocks/NASDAQ/AMD/earnings/ That said, I'm with you, I'd rather be holding Intel in this market.
- mhh__ 5y ago
  AMD is a meme stock, that's basically it. Unlike most meme stocks however AMD is a good business regardless
- ksec 5y ago
  And you may be surprised that 80% of investor have absolutely zero understanding of any business. Looking at numbers is all they do. They may understand finance, but not business. Or at least their understanding are very shallow. Right now the bet, or at least the market suggest, Intel wont be able to catch up to TSMC in terms of technological leads, and even if they do, they wont be able to do it as cheaply as TSMC. x86 is being eroded by ARM, and even ARM are not safe from the Riscy Silver Bullet. The strange thing about the market in the past 20-30 years is how they view manufacturing and machinery as liability. For Intel without the technological moat ( in terms of leading edge ), Fabs are not viewed favourably by the market. Does it makes sense, of course not. But the the markets can remain irrational longer than you can remain solvent. Intel is advancing their work far quicker than I could expect. While catching up to TSMC is still a tall order, at least they are finally innovating. Instead of saying No to their Custom Foundry customers they are now being challenged to deliver exactly what their customer demands.

rbrbr 5y ago

pointyfence 5y ago

The market, net, thinks that Intel is going to shrink from a profitability perspective. In 2022, Intel is going to have its first negative free cash flow in at least 15 years. It's going to have negligible free cash flow for the two years after. All of its cash flow and then some is going to build out fab capacity and node tech as it tries to dramatically increase capacity for its design business and its foundry business. Meanwhile, their most lucrative business segments, in particular datacenter, are getting gobbled up quickly by the competition. In Q1, Intel decreased -5% in cloud YOY despite that segment growing quickly. If you believe that everything will go well with Intel, then this is money well spent and the stock is cheap. But given their historic difficulties and the quality and quantity of their competition in XPU design and manufacturing, there's a meaningful chance that their profitability will be greatly diminished.