Hey everyone.

Welcome to our Opportunity Mining section.

The company we'll dive into this week is Advanced Micro Devices, Inc. (NASDAQ: AMD).

AMD is one of the leading chip designers in the world. However, its stock plunged 56% in 2022 due to concerns about a cyclical downturn in the semiconductor industry. [1]

Will AMD bottom out in 2023？

[1] Source: moomoo

01 Business Model

Founded in 1969, AMD is a semiconductor chip designer who has developed a range of high-performance CPUs and GPUs.

The company has four major sources of revenue: Data Center, Client, Gaming, and Embedded segments.

For the full year 2022, the company generated revenue of US$23.6 billion, up 44% YoY.

Here's AMD's revenue breakdown for the year ended 2022:

02 Strength

● Expanded product portfolio

AMD has been diversifying its business as a multi-year strategy.

The company closed the acquisition of Xilinx and Pensando Systems in 2022, which enables AMD to expand its product portfolio across cloud, data centers, and intelligent devices.

The differentiated product portfolio may help AMD be more resilient to the headwinds in the semiconductor industry and increase its ability to capture more market share.

According to data from PassMark, AMD is fast eating into Intel's CPU market share, up from just 18.1% in Q1 2017 to 35% in Q1 2023.

03 Growth Potential

● Data center market growth

Data centers are the backbone of the modern economy, and we will increasingly feel their presence as cloud computing and artificial intelligence become part and parcel of our life.

Since the start of 2023, ChatGPT, an AI chatbot developed by startup OpenAI, has sparked an AI arms race among the world's biggest tech players.

Companies including Microsoft, Google, Alibaba, and Baidu announced their AI product plans, which may increase the demand for cloud services and data centers.

According to BlueWeave Consulting, the data center market was worth US$ 206.2 billion in 2021. It is estimated to grow at a CAGR of 10.20%, earning revenue of around US$ 404.9 billion by the end of 2022.

In 2022, AMD's Data Center segment revenue was US$6.04 billion, up 64% YoY.

04 Financial

Despite the weak PC environment in the second half of 2022, AMD still reported positive growth in revenue and net income financial results.

● Revenue growth

AMD delivered rapid revenue growth in the first two quarters of 2022, with a YoY growth rate of more than 70%. However, the growth slowed down in the second half due to a weak PC environment.

● Profitability

Non-GAAP net income was US$5.5 billion in 2022. It grew more than 100% YoY in the first half of 2022, but it slowed down in the second half of the year due to the softening PC market.

● Cash flow

AMD generated positive free cash flow in every of 2022. The company's free cash flow reached US$3.1 billion in 2022. Sufficient cash flow allowed the company to fund its product roadmap, expansion plans, and other expenses.

05 Valuation

As of February 2023, AMD's market value reached US$136.55 billion.

AMD's major rivals are Intel in the CPU market and Nvidia in the GPU market.

As of February 08, 2023, AMD stock's PE and PS were 100.82x and 5.79x, respectively.

AMD was more expensive than Nvidia based on P/E, but slightly cheaper based on P/S.

Intel had the lowest valuation among the three, as it was growing much slower than the other two companies.

06 Risk

● Cyclical risk

The semiconductor industry is highly cyclical. If low demand and overcapacity are here to stay, AMD's business will still feel the pain.

● The loss of large clients

A substantial part of AMD's business depends on a few large clients. If one of its key customers stops buying its products, its business will be materially affected.