“People are really capable if you’re able to give them the confidence and paint the picture of where we need to go.” Lisa Su, CEO of AMD
This research took me days. I almost gave up. However, the deeper I dived, the more intrigued I became.
I always love to challenge myself, to explore outside of my circle of competence. As this company is in the semiconductor industry, it was difficult to wrap my head around the business. I am not a techie - I cannot unravel the intricacies of a device, let alone the chips inside.
What kept me going was that this is a female-led company in an industry dominated by males. You can call me a feminist but I really love witnessing female figures invalidating gender stereotypes.
Below is an overview of my bullish narrative of this company. (Definitely not a technical research on their products.) And of course, the challenges ahead for them. The victories wouldn’t be glorified if there were no uphill battles an underdog needs to fight, right?
I made a video about this — shameless plugs: Instagram| Youtube
5-year phenomenal stock appreciation
Advanced Micro Devices (NASDAQ:AMD) was on the brink of brankruptcy when Lisa Su took over as CEO in 2016. They were bleeding cash and laden with debt, drowning in disdain. Who would have known in just 5 years, she went from zero to hero. AMD’s stock shot up from USD2 to USD80, appreciating 4000%, beating the market.
What do they do
AMD is a semiconductor company. They have positioned themselves as one of the leading players in chip production for Data centres, PCs, and gaming. Mostly the bigger things. Neither your mobile phones, nor household items. Their goal is to empower industries with the best performance chip in town.
Demand in large and growing markets
Every industry that requires high computing power has a demand for chips. Coupled with the speed of how technology is transforming industries, the demand for them will intensify.
Besides, the advancement in the capabilities of these chips have to be pertinent to meet the endless cravings of consumers for superior products.
This business is risky. They have to be constantly playing the long game, taking bets about the future. Hoping most of the bets they make will be right.
Astonishingly, AMD did it. It’s as if Lisa was looking through a crystal-ball in 2016, figuring out what businesses/consumers need and want in 5 years time.
Increasing Revenue Growth
From 2016 to 2020, their revenue growth was staggering. In 2020, they had a 45% YoY increase.
2017 was a turning point for AMD. Their operations turned profitable. In 2020, they had a 116% YoY growth in operating income.
In retrospect, the massive growth was due to the lockdown when everyone was working from home, thus demand for computers increased significantly. Nevertheless, analysts are predicting that this growth and profitability for semiconductor companies will remain throughout 2021.
The question is: Are they able to sustain their competitive advantage to continuously increase shareholders’ wealth, above and beyond?
Looking into AMD’s future
AMD will be focusing on the graphics market. The graphic chips are responsible for how fast and smooth objects move in your screen; usually the specs that you compare between two similar devices.
An interesting capability that graphic chips can be used for is in crypto mining. With crypto being the talk of the year, the demand for these chips will increase. However, AMD will most likely benefit from the acquisition of Xilinx (NASDAQ:XLNX) that is already manufacturing chips that power dedicated mining systems
Another area of focus for AMD is the data center market. They have been doing relatively well in acquiring big names like HP, Microsoft, Alibaba to utilise their chips, showcasing their supreme performance and reliability of their chips.
From what I have learned, they have caught up with the biggest competitor, Intel, in terms of performance of their chip and have been gaining market share. (Correct me if I’m wrong)
Uphill battles
The graphics market is highly competitive and consolidated. Most of the market share is already dominated by major players. AMD has to continuously innovate and enhance their chip capabilities if they want to capture a larger portion of the market.
By comparing the profitability of AMD, Intel and Nvidia, the major players in the market, AMD has the lowest operating margin. This seems like the competition is too high and AMD is unable to price their chips effectively to increase their operating margin.
Trust in Management
The success of AMD can be attributed to the current CEO, Lisa Su. She had the right capabilities and unswerving desire to turn the tables around. An epitome of a visionary CEO. I believe the success of AMD in the next 5 years will be highly dependent on her leadership.
A company doesn’t fail when it runs out of cash, it fails when the management runs out of energy.
AMD has always been the underdog, whom I openly vote for. Somehow the victory’s a thousand times sweeter when the underdog wins.
Disclaimer: I have a position in this company, I may be bias so do your own due diligence.