Author | Star Investments
Compilation | Wall Street event
(NASDAQ: AMD) recently launched an AI accelerator to the market, which is similar to Nvidia's GH200 Grace Hopper chip.The second quarter of 2024 reports strongly implies that its new AI chip is attracting attention in the market and helps improve the fund's fundamentals.Investors are increasingly confident that AMD can become the second largest chip supplier in the AI infrastructure market.
One aspect of Nvidia's leading AMD is that it can provide customers with a complete system solution, also known as the rack -level architecture.The rack -level architecture is a choice of high -performance computing and generating AI applications.As cloud computing companies and enterprises have established more data centers for generation AI, the frame -level architecture has become more and more popular.Nvidia leads competitors including network hardware, software, water -cooled GPUs, and professional knowledge in combining multiple components in the frame -type server system.
Nvidia's main high -speed interconnection products are NVLINK.It can connect Nvida GPU to another GPU in the rack or small cluster, or can connect the GPU to the CPU.Until recently, AMD still lacks similar interconnected products.
In order to copy the high -speed and short -distance interconnection between non -Yingweida accelerators, including AMD, Broadcom, Systems,,,,,,, Meta, and the company, have created an open industry standard called Ultra Accelerator Link (UALINK).According to an article, Ualink may be listed in 2026.
However, AMD did not wait for it.When asked UALink at the second quarter of 2024, Lisa Su, CEO of AMD, said (focus on emphasis):
First of all, we are very happy about all partners who are working with Ualink.We think this is an important ability.However, by acquiring Pensando, we already have all these features under AMD, including our Infinity Fabric and our network functions.Then you will see we invest more in this field.Therefore, this is one of the ways we help customers enter the market faster, that is, investing in all components, including CPUs, GPUs, network functions, and system -level solutions.
The company defines Infinity Fabric in a paper describing its network strategy: "AMD Infinity Fabric ™ (IF) is a high -speed host interconnection that can be used to connect multiple AMD CPUs and GPUs." In essenceAMD version of Nivine Nvlink.
AMD acquired Pensando Systems on May 26, 2022.The company focuses on accelerating data transmission through software infrastructure and its data processing unit (DPU). DPU is an increasingly important component that can realize high -levels such as AI, machine learning, the Internet of Things (IoT), 5G, and hybrid cloud configurationCalculate application.Smartnic (smart network interface controller) usually contains DPU.With Pensando, AMD may develop products that are equivalent to or exceeded by NVIDIA ConnectX series NIC.
AMD has improved the quality of its CPU and GPUs, and will soon launch network products, which may win market share in competition with Nvidia.However, if you want to be a real threat, you also need a element: system -level solution.It acquired this element on August 19, 2024, when it announced the acquisition of ZT Systems.The company specializes in complex systems for rack -level solutions.
AMD chief technical officer Mark Papermaster, at the German Banking Conference on August 28, 2024, gave the following speeches on the ZT Systems acquisition of the proposed ZT Systems acquisition:
Think about the news that we announced the acquisition of ZT Systems last week. This is actually the next stage of our strategic growth, that is, to ensure that we have all the skills we need, not only have the best AI hardware, but not only with competitiveness and leadershipAI software also has the ability to integrate and optimize it at the system level.ZT Systems represents this.They have 15 years of experience in building some of the most complicated heterogeneous system design, integrated CPUs, GPUs, networks, advanced thermal management and cooling functions, and high -efficiency control software required for the design required for these complex rack design.
Through this potential acquisition, AMD will be able to design custom hardware and software configuration for different AI applications.It will also be able to push these AI solutions to the market faster, which may make its solutions stand out in the market and gain competitive advantages.
Although AMD should benefit from the adoption of artificial intelligence, investors should not expect their income to achieve three -digit growth like competitors Nivine.Compared with the faster competitors, the two departments of AMD performed poorly and became the pillar of its overall performance.
AMD's data centers and client departments perform well.The data center increased by 115%over the same period last year.In contrast, Nvidia's data center revenue increased by 154%in the second quarter.However, the following table shows that the performance of AMD's games and embedded departments is obviously not good, and it has become a burden on total revenue and profitability.
CEO Su talked about the data center business at the second quarter financial report:
Speaking of our data center AI business, we set the data center GPU income record for the third consecutive quarter. The MI 300 quarterly revenue exceeded $ 1 billion for the first time.Microsoft has expanded the use of MI300X accelerators, supporting GPT-4 Turbo and multiple co-driver services (including Microsoft 365 Chat, Word and Teams).Microsoft has also become the first large -scale enterprise that announced a comprehensive launch of public MI300X instances this quarter.The new Azure VM uses the leading computing performance and memory capacity of the MI300X industry, as well as the latest ROCM software to provide leading reasonable price performance when running the latest frontier model including GPT-4.
AMD's Instinct Mi300X is a high -performance AI accelerator that is optimized for large -scale language models (LLM) for reasoning and training workloads.The company needs to show investors that it can obtain a foothold in large cloud providers such as Microsoft with its main AI products (such as GPT-4 and Microsoft 365)-task is completed.The company showed Wall Street that its product is a feasible alternative to Nvidia AI accelerator.ROCM software is an open source competitor of CUDA software.If AMD can build ROCM, it may break another competitive advantage of Nvidia.
AMD also raised the performance expectations of the data center department.CEO said at the financial report conference call:
All in all, customers have a very positive response to our many years of Instinct and ROCM roadmap, and we are very satisfied with the momentum we are building.Therefore, the revenue of the GPU [Graphic Processing Unit] of the Data Center will now exceed $ 4.5 billion in 2024, which is higher than the US $ 4 billion in April.
In the second quarter of AMD 2024, the operating income profit margin of the data center department increased by 15.1 percentage points to 26.2%year -on -year.The data center's operating income increased by 405%.
The company's total revenue in the second quarter of 2024 increased by 9%to $ 5.8 billion.
AMD GAAP (U.S. GM Accounting Standard) gross profit margin rose 352 basis points to 49%.The company's non -GAAP gross profit margin rose 340 basis points to 53%year -on -year.The rapid growth of data centers with higher profits has driven the increase in total gross interest rates.Indore Investment
The following table shows that the biggest difference between GAAP and non -GAAP gross profit margins is the amortization of acquiring related intangible assets.This is the way the company is calculated by the decline in value of non -physical assets acquired (such as patents, trademarks, and copyrights).It is similar to depreciation of physical assets.Ahmedabad Investment
In the second quarter of 2024, the non -GAAP operating income increased by $ 190 million year -on -year to $ 1.3 billion.In the second quarter, the non -GAAP operating profit margin increased by 2 percentage points compared with the same period last year, reaching 22%.Operating expenses/income increased by 2 percentage points year -on -year to 32%, which means that the company is increasing investment to achieve revenue growth.However, the profit increase in income this quarter exceeded the growth of operating expenses.As the competition is still fierce, investors should pay attention to how long the management can maintain this situation.AMD may need to increase R & D (R & D) investment to keep up with the pace of Nvidia in the field of AI chips, which may damage future operating profit margins.
The company's GAAP diluted income (EPS) in the second quarter of 2024 increased by 700%to 0.16 US dollars.Its non -GAAP diluted earnings per share were $ 0.69, an increase of 19%year -on -year.
AMD's operating cash flow ("CFO") ratio to sales is 8.23%.The figure below shows that the company's CFO to sales ratio is periodic, and it usually rises to more than 20%at the peak period.Promoted by artificial intelligence, the company's server and PC market may enter the rising cycle.If this evaluation is accurate, it is expected that the ratio of CFO to sales will rise to more than 20%in the next one to two years, which is a good sign for free cash flow ("FCF").
AMD's free cash flow (FCF) in the second quarter of 2024 (TTM) was $ 1.357 billion.The figure below shows that the company's TTM FCF exceeded $ 3.2 billion before the traditional server and PC market declined in 2023.Assuming that AMD's main terminal market comes out in the second half of 2024, as some analysts expect; investors may see that FCF rises sharply in 2025.
As of the season of June, the company's total cash and sales investment was US $ 5.34 billion, and the total debt of long -term debt was 1.719 billion US dollars.
AMD's total debt was US $ 2.245 billion, and TTM EBITDA (profit before interest tax depreciation and amortization) was $ 4.046 billion.The ratio of its debt to EBITDA is 0.55, which means that the company can repay the debt with profit.Its debt to equity ratio is 0.04, which means that the company's debt default risk is relatively low.
The figure below shows the company's expectations for the third quarter of 2024.If the company reaches US $ 6.7 billion in revenue expectations, its revenue will increase by 15.51%year -on -year, slightly higher than the analyst's expectations.
If the company implements its 53.5%gross profit margin expectations, the gross profit margin will increase by 2.5 percentage points from the same period last year.Suppose AMD achieves an operating cost of $ 1.9 billion in its third quarter.In this case, operating costs will increase by about 12%over the second quarter of last year, which is about 3.5%lower than expected income.Investors hope to see income growth continue to surpass operating costs.
AMD has several risks that require investor attention.At present, investors' emotions for generating artificial intelligence are cooling.One of the things that investors worry are that cloud computing companies such as Azure and Meta Platforms are over -constructing artificial intelligence infrastructure and may not be able to see the return from investment quickly.Some of these companies may withdraw some artificial intelligence investment at some point. This is why some people think that the stock of the production of artificial intelligence infrastructure is in the bubble.
AMD announced that its Instinct Mi300X AI chip's only important customers are Microsoft, Openai and Meta Platforms.If these customers stop buying their AI chips, AMD may face income growth or profit, because they are the company's most important growth momentum.
Another problem faced by the company is that compared with Intel and Nvidia, it has always been behind the CPU (central processor) and GPU (graphics processor) market.The competition in these two markets is very fierce. If the price war is not played, AMD cannot guarantee to maintain or obtain market share, which may damage its long -term profitability.In addition, the company may need to invest a lot of funds to keep up with the pace of the artificial intelligence chip market, especially Nvidia recently decided to release a new artificial intelligence chip each year instead of publishing one every two years.
In response, AMD promised to release a new AI chip architecture at the same speed.At the second quarter of AMD 2024, the CEO said, the CEO stated that
"From the perspective of the roadmap, we are accelerating and expanding our Instinct roadmap to provide the annual AI accelerator, starting from the launch of MI325X later this year."
The company may need to increase R & D expenditure to keep up with Nvidia, but this may damage long -term operating profit margins.
AMD's price -earnings ratio is 162.92, which is much higher than its three or five years average, indicating that the valuation is too high.However, the company is getting out of the bottom of the period, and the profit may increase to its valuation level.
Industry experts predict that the server and personal computer market will rebound strongly from the recent downturn.AMD is expected to reflect this in fiscal 2025.AMD's one -year -old P / E ratio growth (PEG) is 0.41 (PEG) (Pettlement in the fiscal year in 2025 is 24.83, except for the growth rate of 60.04 per share).Some investors believe that the PEG ratio is 1 is a reasonable valuation.Therefore, investors may underestimate the expected profit growth rate of AMD in 2025.If the stock is sold at a reasonable valuation of 1.0, the price is $ 324.82, an increase of 142%from the closing price of US $ 134.35 on September 6.
AMD's price -earnings ratio is 161.63.Although this number is much higher than its three -year and five -year price -earnings ratio, please remember that the company may have just stepped out of the downward cycle, and its free cash flow may be at the lowest point of the cycle.
Suppose AMD's free cash flow can return to a free cash flow of $ 3.2 billion when the closing price at $ 13.4.35 on September 6, 2024 (slightly lower than the peak of the previous rising cycle); its price -earnings ratio will be 68.89, lower than its itThe medium number of five years is 92.52.Therefore, if the stock returns near the peak of free cash flow, the market may underestimate its potential free cash flow.The free cash flow is 3.2 billion US dollars, the medium price -earnings ratio of five years is 92.52, and its stock price will be $ 180.41, an increase of 34.28%over the closing price on September 6.If the promotion of artificial intelligence applications will push free cash flow to more than $ 3.2 billion in the next few years, the company's stock price may exceed $ 180.
Overall, AMD proves that its AI chip can make some progress in the market.The revenue report in the first and second quarters of 2024 provides sufficient evidence, indicating that it should become an important beneficiary of global AI infrastructure construction.As its main terminal market improves in the next year, the company's fundamentals should be significantly improved.
The company's terminal market is periodic.Investors who are uneasy about the volatility of the chip industry may avoid investing in the company.However, if you are looking for growth stocks that can bring Alpha's income in the next few years, consider buying AMD.In addition to artificial intelligence, it also benefits from cloud computing, the Internet of Things (IoT), automotive electrification, marginal computing and 5G growth.
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