Hypergrowth hidden in plain sight - AMD

Hypergrowth businesses are hidden in plain sight in many non-software verticals. You just have to look closer.

For example, here are the numbers for AMD’s enterprise segment - their fastest growing line that is serving a growing secular business trend - the migration to cloud:

Revenues ($M):
Year    Q1     Q2    Q3    Q4    FY
2019   441    591   525   465  2022
2020   348    565  1134  1284  3331
2021  1345   1600  1915  2242  7102

Revenues YOY%
Year    Q1     Q2    Q3    Q4    FY
2020  -21%    -4%  116%  176%   65%
2021  286%   183%   69%   75%  113%

Revenues QOQ%
Year    Q1     Q2    Q3    Q4
2019          34%  -11%  -11%
2020  -25%    62%  101%   13%
2021    5%    19%   20%   17%

And stepping back and looking at the forest, here is what you get in the entire company.

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 - 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.

Publishing my thoughts at https://twitter.com/Iwannabeontheb2 and beachman.substack.com