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Proprietary Data Insights Financial Pros’ Top SemiconductorStock Searches in the Last Month
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The Semiconductor Stock Bucking The Trend |
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No other technology product goes through boom and bust cycles quite like semiconductors. Covid left everyone from automakers to data centers needing more processor power. While acute shortages still exist, the industry flipped like a pancake, with companies from Taiwan Semiconductor (TSM) swimming in stock. The chart below from MacroMicro shows the Days Sales in Inventory by chipmaker:
That hasn’t stopped financial pro favorite Advanced Micro Devices (AMD) from gaining more than 65% year-to-date, second only to their top semiconductor search, Nvidia (NVDA). Back in Septemeber, we pointed out that AMD would become a key player in the AI revolution. Right now, that’s the theme of the day. The real question is whether we can justify adding to a position up here. AMD’s Business AMD used to be a second-tier player for decades, watching Intel (INTC) pass it by. Then, management had the brilliant idea to focus solely on design and outsource fabrication. This allowed AMD to gain and keep a technological edge over its peers. Today, it’s one of the top companies, whether we’re talking about the personal PC market, data centers, or automotive (embedded).
Source: AMD Q1 2023 Investor Presentation Gamers are abuzz about the Ryzen 6000 and 7000 series set to debut in the second half of this year which features Zen 4 architecture and DDR5 memory support. These awesome chips are being manufactured on TSMC’s 5nm process node, the most advanced available. Financials
Source: Stock Analysis AMD hasn’t had a problem with growth…until now. The +40% growth from 2020-2022 is at an end, with down YoY for Q1.
Source: AMD Q1 2023 Investor Presentation Given the inventory surplus, which is up 19% YoY for the quarter, that’s not much of a surprise. However, it’s pressured margins as well. In fact, the company expects revenues to be down for Q2 by 19% YoY with gross margins around 50%, though they do predict those to expand in the second half. The good news is with net debt of $2.5 billion, AMD is well-positioned to pivot when and where it needs. Valuation
Source: Seeking Alpha We aren’t surprised to see AMD or NVDA garner high P/E multiples. However, the price-to-cash flows are a bit excessive and, in Nvidia’s case, almost offensive. Neither company is what we’d call a value stock and is frankly risky, given their size. Trying to grow sales +40% per year at a multi-billion dollar company is a lot harder than it is for a small-cap company. None of this is to say Qualcomm (QCOM) and its exposure to mobile devices is appealing. And Intel is in a dumpster fire of its own making. But we’d argue that TSM presents a solid value here. Growth
Source: Seeking Alpha Speaking of growth, both AMD and NVDA forecast revenues in the double-digits but well off the pace of their recent trends. And while both are forecast to grow EBITDA and EPS, we’d question whether that materializes if a recession hits. Profitability
Source: Seeking Alpha Again, we have a tough time advocating for AMD when it’s not at the top of its class in margins, even if decreases are temporary.
Our Opinion 6/10 AMD is simply too expensive. It’s future is bright and the company makes amazing products. Plus, there are extraordinary macro trends in its favor. But we cannot justify a position at these prices. In our opinion, TSM is a higher quality play here even with the geopolitical risks. |
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