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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (67471)	11/2/2025 2:03:47 AM
From: Johnny Canuck	Respond to of 67822

Chain of Thought for DCF Valuation of Advanced Micro Devices (AMD) To determine the Discounted Cash Flow (DCF) intrinsic value per share for Advanced Micro Devices (AMD), we apply a two-stage DCF model. This projects free cash flows (FCF) over a 5-year high-growth period, calculates a terminal value for perpetual growth thereafter, discounts all to present value using the weighted average cost of capital (WACC), and divides by diluted shares outstanding to arrive at the per-share equity value. AMD has low net debt (~$3.89B debt vs. $5.87B cash as of Q2 2025), so enterprise value approximates equity value after minor adjustment. Step 1: Gather Key Inputs Using data as of November 2, 2025 (pre-Q3 earnings on November 4): Trailing Twelve Months (TTM) FCF: $4.04 billion USD (as of Q2 ending June 2025; operating cash flow minus capex). High-Growth Rate (Years 1-5): 30% annually. This is a balanced estimate amid AI/data center tailwinds (e.g., MI300 chips), with analyst revenue growth at 28% for 2025 and 27% for 2026, but FCF tempered by rising capex (~$1B+ quarterly for fabs/AI). Higher forecasts (e.g., 56% unlevered FCF) exist but are aggressive; we use 30% for conservatism. Terminal Growth Rate: 3%. Standard for semiconductors, matching long-term GDP/inflation. Discount Rate (WACC): 11%. Averaged from sources (Finbox: 11.5%, ValueInvesting.io: 9.9%, GuruFocus: 14.45%), reflecting high beta (1.89) and sector risks. Shares Outstanding: 1.63 billion (diluted, Q2 2025). All in USD; model computed for precision. Step 2: Project Future Free Cash Flows Base FCF0 = $4.04B. Grow at 30% for 5 years: Year 1: $4.04B × 1.30 = $5.25B Year 2: $5.25B × 1.30 = $6.83B Year 3: $6.83B × 1.30 = $8.88B Year 4: $8.88B × 1.30 = $11.54B Year 5: $11.54B × 1.30 = $15.00B Step 3: Calculate Terminal Value End of Year 5: FCF6 = $15.00B × 1.03 = $15.45B. TV = $15.45B / (0.11 - 0.03) = $15.45B / 0.08 = $193.14B. Step 4: Discount to Present Value Discount at WACC = 11%: PV(Year 1 FCF) = $5.25B / 1.11¹ ˜ $4.73B PV(Year 2 FCF) = $6.83B / 1.11² ˜ $5.54B PV(Year 3 FCF) = $8.88B / 1.11³ ˜ $6.49B PV(Year 4 FCF) = $11.54B / 1.114 ˜ $7.60B PV(Year 5 FCF) = $15.00B / 1.115 ˜ $8.91B Sum of PV(FCFs) = $33.27B PV(TV) = $193.14B / 1.115 ˜ $114.68B Enterprise Value (EV) = $33.27B + $114.68B = $147.95B. Step 5: Derive Per-Share Value Intrinsic Value per Share = EV / Shares = $147.95B / 1.63B = $90.77. Step 6: Interpretation and Sensitivity Current stock price (Nov 1 close): ~$169 (derived from market cap $275B). Implies ~46% overvaluation, driven by AI hype but pressured by capex intensity and competition (e.g., Nvidia). Broader estimates diverge: AlphaSpread ~$172 (slight overvalue at higher prices), Simply Wall St ~$210 (undervalued), GuruFocus ~$49 (heavily overvalued). Sensitivity: If growth = 35%, value ~$117; if 25%, ~$73. If WACC = 10.5%, value ~$98; if 11.5%, ~$85. FCF upside from AI (e.g., data center revenue +115% YoY in Q2) could justify higher growth, but monitor Q3 for capex trends. This model is directional; refine post-earnings via spreadsheet. DCF highlights AMD's growth potential but underscores valuation risks in semis.