Vladyslav Koptiev @AtlasCapital: "$AMD 𝘃𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻 𝗺𝗼𝗱𝗲𝗹 There’s..."

Malta

$AMD (Advanced Micro Devices Inc) 𝘃𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻 𝗺𝗼𝗱𝗲𝗹 There’s less mispricing in AMD than most bulls want to admit - and that tension deserves a story. Here is my assessment of the company’s intrinsic value. 𝗞𝗲𝘆 𝗮𝘀𝘀𝘂𝗺𝗽𝘁𝗶𝗼𝗻𝘀: 1. Explicit average 5Y/5Y growth @ 35%/19% 2. Long-term growth in perpetuity @ 3% 3. Gradual increase in EBITDA margin from 19.3% to 20.3% in Year10 4. WACC @ 10.5%. 5. Adj. EBITDA exit multiple of 17.4 6. Tax rate 18% 7. The input that drives reinvestment is forecasted Sales to Capital ratio = 3.19 𝗛𝗶𝘀𝘁𝗼𝗿𝗶𝗰 𝗚𝗿𝗼𝘄𝘁𝗵 (𝗳𝗼𝗿 𝗰𝗼𝗻𝘁𝗲𝘅𝘁) Over the past decade, AMD has transformed from a cyclical, financially constrained challenger into a structurally stronger semiconductor competitor, driven by consistent execution in CPUs and a meaningful share gain against Intel in both desktop and server markets. Revenue growth accelerated sharply from the launch of Zen architecture, with periods of triple-digit EPS expansion as operating leverage kicked in and margins expanded materially from prior distressed levels. The acquisition of Xilinx further diversified the business into adaptive computing and embedded systems, smoothing cyclicality and expanding total addressable market exposure. While growth has remained lumpy due to industry cycles and inventory corrections, the long-term trajectory has been a sustained step-change in scale, profitability, and competitive positioning within high-performance computing and data center silicon. I am factoring in higher growth than the company has demonstrated historically, but this forecast is in line with analysts’ and management estimates. AMD management projects a 35% compound annual growth rate (CAGR) for total revenue over the next three to five years (from late 2025), targeting significant growth by 2030, driven largely by a >60% CAGR in the data center segment. 𝗠𝗼𝗮𝘁 AMD earns a Narrow Economic Moat rating primarily due to its strong intangible assets in chip design, including capabilities gained from the Xilinx acquisition, supporting analysts’ view that it can generate excess returns on capital over at least the next decade. Its competitive position is anchored in decades of CPU expertise and its rare access to the x86 architecture shared only with Intel, which has historically created high barriers to entry and entrenched demand, as most PC software from Microsoft and Apple was built around x86. While the ecosystem is gradually shifting toward ARM-based and cloud-native environments, reducing the strength of x86 lock-in, AMD remains well positioned, having gained share in both PCs and servers due to Intel’s manufacturing missteps and its own close partnership with Taiwan Semiconductor Manufacturing Company, alongside innovations like chiplet architecture. In data centers, similar dynamics apply, though ARM-based competition from players like Amazon and Nvidia is emerging over time. In AI, AMD’s GPU capabilities are increasingly relevant, though it trails Nvidia’s entrenched CUDA ecosystem, creating switching frictions despite incentives for hyperscalers to diversify suppliers. Additionally, AMD’s embedded segment, largely driven by Xilinx, benefits from high switching costs and specialized FPGA expertise, reinforcing its moat, whereas its gaming-related GPU and semicustom businesses are viewed as less defensible despite contributing to broader design capabilities. 𝗕𝗮𝘀𝗲 𝗰𝗮𝘀𝗲 My price target for AMD is $280, calculated as the average of the perpetuity approach value and the exit EBITDA value. Valuation suggests that the stock is trading at 13% discount to fair value. If adjusted to FV within 3 years, it will generate 5% in annual alpha . My assumptions are already quite bold for AMD, thus I don’t see much potential for a bull case to realize. Here is why it can work out better than expected: * AI revenue scaling is still early, not priced as terminal * Operating leverage can surprise on the upside * Shift from PC/low-margin segments → data center + AI + embedded * If AMD becomes “credible alternative”, valuation multiple can rerate * Growth without heavy reinvestment = stronger FCF conversion * Multiple expansion is still on the table * Supply chain normalization reduces downside risk * Embedded + Xilinx optionality still underappreciated 𝗖𝗼𝗻𝗰𝗹𝘂𝘀𝗶𝗼𝗻 A 13% discount does not appear to provide a sufficient margin of safety for entry. While AMD’s moat is narrow and gradually expanding, we generally prefer to invest only in wide-moat companies at this level of discount. Keep in mind that this is an estimate - just like any DCF model. I’m not claiming perfection, but I do trust these calculations to guide my own investments. Hopefully, they can help inform yours as well. ___________________________________ 𝘋𝘪𝘴𝘤𝘭𝘢𝘪𝘮𝘦𝘳: This post is for informational and educational purposes only.

Not investment advice. The author may have financial interests in the mentioned instruments.

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