AMD's mike drop Q4 earnings report

Portfolio: They are eating their competitors' lunch on their way to becoming the next NVDA

Imagine that you are meditating on a sandy beach, your eyes are closed, the sun is bathing you with warmth, a nice cool breeze is in the air, the constant, soothing sound of the waves crashing on the shores in the background....and your yoga coach is giving you gentle instructions on how to relax, control your steady breathing, focus on the positive future because everything is going to be just fine.

Yesterday's AMD Q4 earnings call was my beachfront zen moment. Lisa Su was my meditation guru.

In the midst of the global supply chain chaos and market turmoil, Lisa and her team delivered a fabulous earnings report that demonstrated why AMD is the next NVDA in the making with Lisa at the helm. They are executing on all cylinders, against all odds and are eating their competitors' steaks and fries....quietly and confidently…”I will take that medium-rare please”.

Here is what stood out to me in AMD's Q4 earnings report: (refer to the AMD financials map below)

Revenue growth - They have beaten their guidance 6 quarters in a row - Q4 YOY growth was 49% versus the 42% estimate. 2021 annual YOY growth was 68% versus the raised 65% estimate. Sequential Q4 QOQ growth was 12% versus the 7% guidance. 2022 revenue growth guidance was raised from 19% to 31%YOY. Mike drop here!

Profitability - Gross margins have been steadily increasing over the past 7 quarters up to 50% now and will continue to climb - est. 51% next quarter. Adj. EBITDA has also been rising for 7 straight quarters, most recently a 26% QOQ increase. Operating margins have increased for 7 straight quarters, at 25% in this quarter. Net profit increased 27% YOY to over $3.1B or 167% YOY if you remove the one-time $1.3B tax credit from Q4 2020.

Cashflow - Operating cashflow increased 350% annually YOY at $3.5B for the year. Free cash flow increased more than 400% annually YOY for the year. And these % increases are not on small bases...not millions but billions!

Market share - You might point out that the Computing segment is decelerating YOY for the past 2 quarters. However I own AMD for their enterprise business dominance which had very solid YOY growth for 6 quarters straight, at 75% YOY in the latest report and 17% sequentially QOQ. Their data center business doubled YOY across cloud and enterprise customers. Operating income for the enteprise segment rose 213% YOY.

Debt and inventory - remains low and steady at $313M, which is perfect for a rising rate environment and an industry that is currently in a heavy capital spend cycle. Inventory levels remain steady reflecting good operational and supplier relationship management along with continued customer demand.

Share buybacks - They bought back $1.8B of their shares in 2021, bought $1B in Q1 2022 so far and plan to buy back $1.2B more. This will provide strong support to the share price even during market volatility.

Products - The EPYC processors are the preferred chips for their cloud and enterprise customers. They flexed their pricing power via higher average selling prices for both the Ryzen and Radeon processors in the computing and graphics segments. They announced semi-custom chip partnerships with Google, Amazon, Meta, Microsoft and Nvidia. And their product innovation continues across all the five major product lines including the Instinct processors.

Xilinx - The acquisition of Xilinx is on track to close in Q1 2022 because all regulatory approvals have been secured. XLNX reported strong quarterly results last week. After the two companies combine, AMD will further strengthen their data center product lines as well as enter new verticals such as automotive, telecommunications, industrial, aerospace etc.

I cannot find a red flag in their earnings report. If you spot one, please let me know.

So here is my plan regarding AMD: