Leading semiconductor company Advanced Micro Devices, Inc. (AMD) is forecasting robust demand for its data center Artificial Intelligence (AI) solutions. In addition, the corporation is preparing to launch and escalate production of its MI300 accelerators in the fourth quarter.
However, this anticipated development has raised concerns amongst Baird analysts. They have expressed apprehension about the lack of design wins outside of supercomputing applications to date. In response, Baird has reduced its share price target from $170 to $125. Moreover, Bruce Kamich, an analyst from Real Money, estimates a downside target of $51.
Taking into consideration these factors, it would be valuable to explore AMD's primary financial indicators to comprehend why avoiding the stock might be prudent at this point.
Unpacking the Fluctuation in Financial Performance of Advanced Micro Devices Inc. (AMD)
The trailing-12-month net income of AMD over the recent period shows a fluctuating trend.
- For the year 2020, AMD's net income on December 26 closed at $2.49 billion.
- There was a consistent climb in 2021, peaking on September 25 at $3.97 billion, with slight drops in December to $3.16 billion.
- During the first six months of 2022, the income showed an undulating pattern, settling at $3.13 billion on June 25, but a significant decline was observed in the third quarter to $2.27 billion in September, and further drooping to $1.32 billion by the end of the year.
- Unfortunately, this downtrend continued into 2023, with an alarming drop to $395 million by April, and by July, it reported a loss with a net income value of -$25 million.
In reviewing the growth rate from December 26, 2020, to July 1, 2023, we see a drastic decrease from $2.49 billion to -$25 million, signifying an alarming setback for AMD from their initial status. This presents a significant concern for the company's financial health. The detailed analysis of quarterly changes demonstrates that while there were profitable periods, the overall trend skews towards a concerning decrease in net income over time.
AMD has experienced noteworthy fluctuations in its reported Return On Invested Capital (ROIC) from December 2020 to July 2023.
- In December 2020, AMD registered a ROIC of 0.36, which showed a steady increase to 0.657 by December 2021.
- The first quarter of 2022 marked a slight decrease in ROIC to 0.617.
- However, there was a significant drop in ROIC in the remaining quarters of 2022: June recorded 0.486, September dropped further to 0.29, and December ended at just 0.126.
- This trend continued into the following year as well, with April 2023 registering an ROIC of 0.024 and July showing a negative ROIC of -0.019, representing the first instance of a negative return.
Between the first recorded value in December 2020 and the last, in July 2023, the growth rate of AMD's ROIC stood at a significant drop of approximately 105%, highlighting a considerable decline in performance efficiency over this period.
While the general trend exhibited an upward tilt in 2021, it was followed by a substantial downturn from 2022 till mid-2023. More recent data toward the end of this period indicate a steep fall and a less favorable direction for AMD's ROIC.
From the data provided, there has been an observable fluctuation in the Return On Assets (ROA) for AMD.
- Starting on December 26, 2020, the ROA was initially at 0.35.
- It saw a gradual increase through 2021, peaking at 0.39 on September 25, 2021.
- From this peak, the ROA then fell significantly, reaching a low point of 0.02 on December 31, 2022.
- Since then, up until July 1, 2023, it has continued to decrease, currently sitting at 0, suggesting a downward trend in recent times.
In terms of growth rate from the first recorded value (0.35 on December 26, 2020) to the last value (0 on July 1, 2023), there is a significant negative growth of -100%. Therefore, the latest trend in AMD's reported ROA is declining profit efficiency. This should be viewed with concern, as it represents a decrease in the effectiveness of AMD's use of its assets to generate profits.
AMD's asset turnover Indicator shows significant fluctuations and a decreasing trend in the series:
- AMD started reporting an asset turnover of 1.37 on December 26, 2020. It continued to show gradual growth, reaching its peak of 1.48 on December 25, 2021.
- The asset turnover significantly decreased in 2022, starting with 0.75 on March 26, and it gradually declined to 0.35 by the end of the year.
- In 2023, the asset turnover remained relatively stable but still showed a slight decrease, recording 0.34 on April 1 and then slightly dipping to 0.32 by July 1.
The overall growth rate from December 26, 2020, to July 1, 2023, recorded a decrease of approximately 76% (from 1.37 to 0.32). It's important to note that the most recent reported asset turnover for AMD, as of July 1, 2023, stands at 0.32, which is significantly lower than previous years. Analyzing this downward trend could be key to understanding AMD's asset efficiency performance over this period.
Analyzing AMD's Share Price Fluctuation Trend and Growth Rate in 2023
The trend and growth rate of the share price of AMD show a fluctuating pattern over the course of several months in 2023.
- The price began at $93.06 on April 14, 2023, then declined to $86.63 on April 28, 2023.
- In May, we witnessed a strong rising trend, starting from $87.26 on May 5 to finally reaching $113.70 on May 26.
- Over June, the stock continued to rise, hitting a high of $125.50 on June 16 but later retreated to $110.68 by the end of the month.
- In July, the prices displayed a generally stable trend around the $114 mark, shutting the month at $111.95 on July 28.
- August saw a downward trajectory where the price went from $114.41 on August 4 to $105.50 on August 25.
- During September, the price briefly picked back up to $108.31 on September 8 but ended the month at a decreased value of $99.23.
- The recorded data for October shows a small increase, with the share price standing at $102.91 on October 5.
Taking account of this data, the overall growth rate was negative from April 14 to October 5, 2023, indicating that the share price of AMD depreciated during the period. Despite stages of growth, the declining phases seem to outweigh the advancements in value. It's also noticeable that after the peak in June, there is a clear deceleration in price. Here is a chart of AMD's price over the past 180 days.
Examining AMD's Performance: A Deep Dive into Growth, Momentum, and Sentiment
The POWR Ratings grade of AMD for the period covered, specifically from April 15, 2023, to October 6, 2023, has consistently been at a D (Sell) rating. This is relatively low and reflects a lackluster performance for this particular timeframe. In terms of ranking within the Semiconductor & Wireless Chip category comprised of 90 stocks in total, AMD doesn't shine.
It started at rank #85 on April 15, 2023, and ended with a slightly better rank of #81 on October 5, 2023. To clarify, a lower rank is superior in this context, meaning that its position at #81 as of October 6, 2023, though an improvement from the beginning of this records period, still indicates subpar performance overall. Here are some key points:
- Overall POWR grade: D (Sell)
- Highest rank in category: #77 (on July 8, 2023)
- Lowest rank in category: #85 (multiple instances, the latest recorded on September 16, 2023)
- Latest rank in category: #81 (as of October 6, 2023)
Considering the Semiconductor & Wireless Chip sector consists of 90 stocks, throughout the period reviewed, AMD generally hovered toward the less favorable end of the bracket. Please cross-reference this performance review with other investment indicators for a more comprehensive evaluation.
The three most noteworthy dimensions in the POWR Ratings for AMD are Growth, Momentum, and Sentiment.
- Growth - As of April 2023, the growth rating was at 14 points. The program registered a significant increase to 44 points by May 2023. This upward trend continued, with the Growth dimension peaking at 55 points in both August and September 2023.
- Momentum - Initially measured high at 81 points in April 2023. Between April 2023 and June 2023, the rating for this dimension increased to a peak of 95 points. After June, it experienced slight fluctuations, dropping to 71 in August 2023 but later rising to 78 in September 2023, up to a 75-point rating in October 2023.
- Sentiment - The Sentiment rating was initially low at 37 in April 2023. It saw a substantial increase to 60 points in May 2023. These scores showed some variance over the proceeding months, reaching a high point of 71 in July 2023 and ending at 68 points in October 2023.
These three dimensions - Growth, Momentum, and Sentiment - demonstrate key areas where AMD has performed particularly strongly, according to the POWR Ratings.
How does Advanced Micro Devices, Inc. (AMD) Stack Up Against its Peers?
Other stocks in the Semiconductor & Wireless Chip sector that may be worth considering are Renesas Electronics Corporation (RNECF), Everspin Technologies, Inc. (MRAM), and STMicroelectronics N.V. (STM) - they have better POWR Ratings. Click here to explore more stocks in the Semiconductor & Wireless Chip industry.
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AMD shares were trading at $106.89 per share on Friday afternoon, up $3.98 (+3.87%). Year-to-date, AMD has gained 65.03%, versus a 13.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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