Episode 104 | Can AMD Gain Ground on Nvidia?

Rodney Lake (0:01)

Thank you for joining Market News with Rodney Lake. This is a regular program for the GW Investment Institute, where we talk about timely market topics.

I'm Rodney Lake, the Director of the GW Investment Institute. Let's get started.

Welcome back to Market News with Rodney Lake. I'm your host, Rodney Lake. This is a GW Investment Institute podcast coming to you from the George Washington University School of Business, right here in the heart of Foggy Bottom, the Dukes Family Studio here in Dukes Hall. Fantastic setup, ready to start talking about companies, some that are in our portfolio, some that are not. Remember, educational purposes only. Today, we're going to go over a company. We're going to use the Business Management Price Valuation and Balance Sheet GW Investment Institute framework to talk about this company. It's a company that's been in the news. It just crossed over the trillion dollar market cap. This company is AMD.

Now, AMD is well known by many people. They make CPUs and now GPUs as well. They're big in this business and they've grown tremendously recently because of the data center business, as most people might guess. If you said, well, why have they grown so much recently? Well, they've been participating in this along with Nvidia and others. And we'll talk about that from the perspective of their business. They're really in the distant second with Nvidia, but they're definitely in second place with respect to data centers and AI. But they're much more of a challenging situation than one might think to get really a much bigger lead. Now, that doesn't mean they're not going to, and they've been making really good strides there. But we're going to break down business, management, price valuation, and balance sheet. So let's get first into the business. So let's get into some of the basics as we usually cover. So market cap, what's the market cap? Well, we talked about that right around a trillion-dollar market cap, just under when we're recording this, but it went just over here. We're recording at the end of September, and it recently reached that. So just dipping a little bit under here. Obviously, day-to-day, when it gets right there, it can go either way.

But a massive company joined the trillion-dollar club, now just under again. But fantastic business and has been doing super well most recently. So let's talk about some of the recent stats. The quarter that ended in June, which they reported on, the revenue $11 billion up 50% year-over-year and 13% for the quarter. So that's a record. You're talking about gross margins here of 54%.

That's really fantastic. And again, that gets them into elite territory, operating margins to 17 So we'll go over that a little bit more here. But again, let's go over some of the numbers to make sure that we have and let them into context as we typically do. We go back a few years and we say, okay, well, how have these numbers been in the past? And again, we're not thinking about the past as analysts for anything other than to try to set some context. We're focused on today and tomorrow. So on the business side, you are revenue of trailing 12 months. We talked June, 41 billion is the trailing 12 months number. And now let's look back a little bit and the growth rate there, let's call it 40% for the year-over-year numbers. And so when we talk about, where has it been? Well, 2022, 23 billion. And then 23, 22, it actually dipped, so down nearly 4%.

And then back up in 24, this is calendar year end, which is their fiscal year, to 25 So a modest increase, but then a significant jump between 2024 and 25, where we're really starting to see this acceleration from 25.7 to 34.7, 30, nearly 35% increase. And now you're seeing this 40% increase for the trailing 12 months, as we mentioned. And the projected full year number looks like 51 right now, which would be a 47% increase. And if you look out at 27, people are expecting a consensus forecast is 88, that would be 72% increase. And so on the revenue side, excuse me, you're seeing significant growth. And really the acceleration of that growth more recently, and that is really driven by the data center business. And really the packaging both of the CPU and the GPUs has really taken off with the data center business. And the demand there has been, in the news, they would say, unsatiable, but it really has been what they call supply issues, that there's not enough supply to meet the demand, there's a lot more demand. And AMD has been taking advantage of this. Now, if you look at the breakdown rough numbers, Nvidia is probably still something like 90% of the business. Now, that's probably down from 95% of the business, just using round numbers. If you want to leave a comment to give the exacts, just using the round numbers, just for orders of magnitude here. When you talk about where they came from, obviously Nvidia dominating that, let's say 95 AMD, the distance second at five, but then growing to 10, let's say. And so, and maybe more modestly, you could say that seven or 8%, but let's call it, it was 95 and five, and 90 and 10 now. So very significant growth into that business. And one of the things, which we talked a little bit about already, which is, how are they positioned in this business? And so Nvidia is the dominant player. We've talked a lot about Nvidia with the CUDA platform as well. And it's very difficult for people to change out of that system. One of the things to think about is, as an analyst business person investor, when we're thinking about AMD, is it actually going to be a real alternative? Or is it going to remain in this category that it's negotiating leverage for when clients are trying to buy their Nvidia chips, and they want to have at least a way to say, hey, we could use these AMD chips. Maybe we think they're as good or sometimes better depending on the use cases.