New York City, NY – The surge in generative AI technology over the past year has had a significant impact on the semiconductor industry, particularly on companies like Advanced Micro Devices, Inc. (AMD). Alongside NVIDIA Corporation, AMD has been a key player in this market, with their GPUs playing a crucial role. However, while both companies initially experienced growth, the first half of 2024 has not been as favorable for AMD.

Market sentiment has favored Nvidia over AMD, despite both companies being considered superior chipmakers compared to Intel Corporation. In assessing AMD’s position in the market, it is essential to look beyond stock movements and delve into the company’s fundamentals, particularly in a rapidly evolving industry.

AMD’s free cash flow demonstrated substantial growth in recent years, with a slight dip in 2023 due to fluctuations in revenue and increased investment in research and development. However, the company’s first-quarter results in 2024 showed a promising increase in revenues, particularly driven by growth in their Data Center Segment.

CFO Jean Hu has highlighted AMD’s strength in cost reduction in long-term partnerships with customers, emphasizing the company’s ability to provide significant savings in server operations. This focus on reducing total cost of ownership (TCO) aligns with market trends and positions AMD as a valuable player in the industry.

Furthermore, AMD’s products are gaining preference in AI inferencing, a crucial aspect of AI technology. The company’s collaboration with Microsoft Corporation in providing a competitive cloud product further solidifies its position in the market.

Despite these positive developments, factors like share-based compensation and buybacks can impact AMD’s long-term growth potential. Evaluating the company’s intrinsic value through a Discounted Cash Flow (DCF) model suggests a fair value per share, but considerations of past buybacks and stock-based compensation may lower this value.

In conclusion, while AMD shows promise in its financial performance and market positioning, investors must be cautious of potential risks associated with stock-based compensation and buybacks. The current stock price may not reflect a clear discount to future value, prompting a more prudent approach to investment decisions. As such, considering these factors, AMD remains a solid Hold.