Hey guys, it's sasha a few days ago, amd published their q2 results and the numbers in there are ridiculous. In this video, i will show you the most interesting parts of those results and then i'll tell you what my target share. Price 4 amd is and how it's changed. If you follow my channel, you may remember.

I made a video about a couple months ago, where i had an amd target share price of 125 when it was priced at 83. At the time now, a few people told me that i don't understand value investing the stock is horribly overvalued, and yet here we are today amd's current share price, as i'm recording this video is 112. That's 35 percent. Up from when i made that last video and as there's new results and it's getting a little close to my last target price, i've gone and taken another look and revised my numbers.

I am going to share exactly what's changed in my model and why it's changed in this video, but if you don't care about any of that, if you've got somewhere else to go something better to do. My new target price for amd is 186. That is an upside of 66 over the current price, and so i am continuing to hold the stock and i might actually buy more in the coming months. So here is what happened in amd's q2 results for anyone who doesn't know what amd is.

They are a large manufacturer of computer chips, they make processors and graphics cards for consumers and for enterprise, some of them ones you can buy for shelf and some that are custom for large customers. I said last time that i'm particularly excited by the enterprise part of their business, because i think that particular part of amd is going to explode and i forecast that the consumer segment would grow by 45 percent in 2021 and the enterprise segment would grow by 120. I think the 120 growth is what triggers some of the people, because the number sounds so ridiculous. When you know you don't actually go and study amd's business in detail and don't understand what those numbers are based on.

So i expected amd to come out and have a ridiculous quarter, but the numbers were far more ridiculous than i thought. Their revenue went up to 3.85 billion dollars. That is up 99 on the same quarter a year ago and up 12 on q1. But the numbers only get better from here.

Gross profit has gone up by even more 116 on year and 15 on the last quarter, and this is really important to take note of not only is their revenue number growing very, very fast, but their gross margin is also growing at the same time, which is Crazy that gross margin number is now at 47.5 percent and when it comes to important metrics like ebitda or net cash flow, those two things actually multiply and when both of those numbers are going up a lot, the net effect for the business is incredible, but wait That is not even the best bit. Let's look at how that revenue is broken up by business segment. The consumer part of the business made 2.25 billion dollars in revenue. That's a very strong 65 increase year in year.

Far ahead of my annual 45 projection, the enterprise bid made 1.6 billion dollars in revenue - that's 183 percent higher than last year and 19 growth over q1. But here is the bit that these numbers don't show, and this bit is even better than the stuff that we've just talked about. Amd, announced their deal with google cloud on the 17th of june, which should provide an explosive level of demand for amd. And that was right at the end of the quarter, for which we're looking at the numbers.

For so, i think the enterprise growth is going to continue being crazy, at least for the next 12 months. Google is trying to use amd to increase their own market share of that big cloud. Computing business and amd do at the moment have far superior ships, which are arguably several years ahead of intel on the development front. Amd was also chosen as the chip supplier for tesla's new car, starting with the model s that began being produced right at the end of june.

Tesla will be ramping, a production of the model, s and the model x is restarting and soon the same. Revised chips, or at least very similar ones, should make their way into the model 3 and model y cars, because they're using those chips for the full self-driving. For the entertainment and everything else within those cars we're talking a market of 250 000 cars per quarter at the moment, which is going to be rising to 500 to 600 000 cars once tesla's. Two new factories are up and running in the next six twelve months, and that is just tesla.

If amd do similar deals with other car manufacturers, this business is going to be booming. There are huge opportunities and we haven't even seen these numbers show up on the p and now yet largely, let me explain why some of these opportunities are really important. I apologize this is going to get a little geeky for a minute, but it's really critical that you understand this geeky so that you understand why i am valuing the stock, as i am amd, are now working on a 3d stacks chip design. That means you could fit far more transistors on the same piece of silicon real estate, so that means that they can produce far more potent chips when that comes out, and that's probably going to be sometime next year, they're also expected to announce their new five nanometer Architecture also, probably when the new products are being released sometime in q2 or q3 of 2022.

they've been manufacturing on seven nanometer nodes for about two years at the moment. So, by the time they release the next generation, it will be about three years and that next leap will be massive in terms of technology. Now, at the moment, intel their only real competitor in this space is manufacturing. The latest chips on their 14 nanometer node, something amd, will last using four years ago amd actually outsourced their manufacturing.

They use tsmc at the moment the huge taiwan based company and they may use other outsourcers in the future. Intel do everything in-house they've been very slow to adapt because they have to completely go and revamp their own factories, so the thing that they thought was their competitive advantage is actually turning to be a disadvantage and the smaller the node. This is why it's important the smaller that size of the node, the more transistors you can pack onto a chip, the more processing power you can get out of your computer parts and the less energy those chips will actually use per transistor intel announced. They are planning to release their seven nanometer processors in 2023 and my might begin outsourcing, maybe to tsmc at that point.

But that's two years away and amd's development is already moving to the next level. Now so amd will be a whole technology generation ahead already on a five nanometer and apparently working on the three nanometer nodes by the time, intel only start using the seven nanometer that amd by that point will have been using for five years. Okay: let's go back to the numbers. I have made a little chart here for what amd's revenue from the two parts of their business looks like.

So i'm expecting a strong end to the year on the consumer side with q3 particularly doing well. They have made 4.35 billion dollars in revenue so far in the first half of the year and i'm forecasting another five and a half billion for a total of nine point: eight five billion dollars for the year now the enterprise sector is more exciting, but also is The one that's bit more difficult to forecast they've made about three billion dollars just under in revenue so far, and i'm being cautiously optimistic and setting the yearly total to 6.55 billion. So a slight growth in the second half there is a chance that they will actually go and smash that, because of everything that i just told you, but we don't know exactly how quickly those numbers will come through. So i'm going to stick with a somewhat conservative number for now and then see what happens.

I have a 22.9 ebitda margin for the year, which gives me an ebitda of 3.7 billion for 2021.. The margin of q2 was actually higher. It was 24.4 percent, but that was higher than it has been before, and i expect that margins on enterprise maybe won't be as high in the long term, so i've actually scaled it back, i'm assuming another very strong year next year, the new processors and graphics cards Should be coming out, which is always a big boost to amd tesla, should be ramping up their production, which should give them an extra boost and google cloud computing, i think, will continue growing, as will other cloud computing services which i think will begin using amd's products. More so i've put in 60 growth for next year.

That's compared to 90 this year. So although i'm expecting a lot of growth, i'm actually tapering it down and then i'm taping it down even further to just 25 growth in 2026 in my model. So i'm not expecting them to continue growing at 100, like they're doing right now i am bringing it right down. I've also made one other adjustment.

I've taken cash out of the networking capital movements and that's because amd been adding ridiculous levels of cash to the business that they have not yet redeployed or done anything much with, and that is actually a massive positive for the business. It is good news, but in the way that the valuation model works on the dcf, it actually ends up hurting the numbers. Now the textbook definition of networking capital is the difference between the company's current assets and the current liabilities, which does generally in the technical sense, include cash, but it is pretty much an accepted standard to not actually count cash these days. So i've made that adjustment here because i think it makes more sense.

I've increased my valuation parameters as well. You might notice this i've increased perpetual growth rate from four percent that i use last time to five percent and the ebitda multiple from 12 to 15, and that's because i think the outlook for amd is just getting better and the runway over the last three months Has got longer, as the news has been coming out and on the back of all of that that makes my target share price for amd 186 dollars, and that is a lot higher than the current price of 112, a 66 upside. But there's one other thing amd are currently in the process of acquiring another company called xilinx and i'm not going to go into the full details. Xilinx produce a field, programmable gate arrays.

These are basically computer chips that you can program specific software, specific instructions onto to carry out some particular tasks instead of the usual all-purpose chips that can run any software you throw at them. That means they are constrained versus regular chips in some ways, but they are far better at performing those specific tasks they were designed for now. There are a lot of synergies and potential tech crossover that xilinx will bring to amd when the merger eventually happens and when the deal completes. They are just waiting for chinese regulators to approve the deal and then it will go ahead, possibly in q3 or q4 of this year.

Amd will be buying xilinx by printing a load of new shares and not spending any cash and now we'll add 426 million shares on top of the 1.21 billion that are already in circulation, and that might speak some people because people don't like dilution, you see, but I'm a big fan generally, especially in this kind of case. I actually expected the benefits and the value of what the new business brings to amd will far outstrip the share dilution over time. But i thought that i'd pull the numbers together and see what happens if the merger really didn't work out, really didn't do much at all uh. There was no synergy.

I've made a little model here. That assumes that there is no benefit at all to amd and the zhang's just grows at five percent per year. Basically, does nothing just continues sort of slowly doing what they're doing now, and in that scenario, where silence flounders and the md share price continues doing the same thing as it was doing before, and my target share price comes out at 150 heck, even if i said Xilinx value to zero, i still get 138 target share price. So i'm pretty happy here the bad scenario, the one where everything goes absolutely to poop um still gives me an upside of 23.

So, on the back of that, i am continuing to hold my amd shares and i might be buying more in the next few months. If you found this video useful, don't forget to smash the like button for youtube algorithm so that more people can watch this video. Thank you so much for watching. I really really appreciate it and, as always i'll see you guys later,.