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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. S

• 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???