Hi guys it's sasha if you've watched my channel before you probably know that i'm quite heavily invested in the semiconductor space. There are a lot of reasons for that, but today i wanted to talk about one company in this space that i'm particularly excited by and that company is amd in this video. I'm going to share my views in amd, talk you through their numbers and show you my valuation model and my target price, but just before i go any further, i have to make a disclaimer. I am not a financial advisor.

I can't provide financial advice to you and if you do need financial advice, please make sure you go and seek the help of a suitably qualified professional. This is just my personal opinion and it should be taken as such. This is just purely for information and educational purposes, so just in case anyone wants the answer and doesn't care why the target price for amd that i have said at the moment is 125, which some people might think is on the high side, and it is about 50, higher than the current price of which is trading as i'm recording this video, which is about 83 dollars, and i'm gon na walk you through exactly why. That price is what it is, and i'm gon na explain exactly my reasoning for it.

So if you're interested in that stay tuned now amd is a company that manufactures computer chips and specifically, they operate in two core areas: processors and graphics, processing units amd is traditionally known as a manufacturer for consumers, and today, 61 of their business is still in that Consumer space, but the super exciting part is the enterprise part and i'm gon na get to that bit in just a second. But while we're on the consumer side amd is currently dominating the process of manufacturing space. Their processor technology at the moment is years ahead of their one big rival, which is intel, and that is the only real serious competitor they have on the graphics side. Radeon, which is an amd product, have been rapidly capturing catching up with nvidia over the last couple years to a point where they are currently closed, but still behind on the performance, with their 6000 series units that they launched in q4 last year and the rate at Which they've been closing the gap to nvidia suggests that they might get a whole lot closer or even on par with them as early as potentially this year in december this year, but maybe in 2022, the innovation from the processor side of the business is definitely appearing To be spearheading this growth in a phenomenal way, the consumer side of the business is growing at a rate of 46 percent in q1 of this year versus the same quarter in 2020, and this rate of growth has been pretty consistent.

The entire business has posted a 45 growth in their annual results for 2020 compared to 2019.. Now a 45 rate of growth is pretty incredible, and the amazing thing is, i expect this rate to sustain if not actually accelerate over the next few years. We have a huge growth in processor, intensive work and distributed workforce industries from media to communications, to design and architecture are requiring top end processing power, which these guys are supplying as a dominant provider. And then you have the rate at which developing countries are adopting these technologies, adding these industries adding these processes.

These workflows - and this is only adding to the demand pressure, but anyway, the 45 rate of growth for the consumer business is not even the most exciting part of amd. On the enterprise side. Amd is really beginning to accelerate at a phenomenal at an unbelievable rate. Their revenue for this side of the business in 2019 was 465 million dollars out of a total revenue of 2.13 billion, so about 22 that revenue increased from 465 million to 1.35 billion.

That's a 286 rate of growth and the enterprise side of the business is now contributing over 39 of the total revenue. But the crazy part is that this segment seems to be actually growing a lot more in 2021 numbers that we haven't seen yet in march 2021. Amd announced their amd epic 7003 series cpus for the enterprise segment and they are not messing about tests from across the board are showing performance levels of at least two times that of the closest competitor at the top and even more of an upside for mid-range units. We are talking a margin of years in terms of development between them and everybody else, and while we're on the development side amd is spending a huge amount of money to push themselves even further.

They spend a record 610 million dollars in just q1 of this year. On r d, that's 38 of their gross profit - that is a really large amount of money, and the results of that development effort are really beginning to show this year, amd is being integrated into all the leading cloud computing solutions in a big way. For the first time, amazon, aws, google cloud and microsoft azure i've seen these come through myself, because i run websites and i frequently manage service and those instances are offering more processing power at a lower cost. So i think the numbers from the segment will be really really interesting to watch over the next few years and while we're talking about numbers in the q1 release that they published a few weeks back amd said that they're expecting 2021 to finish 50 up in total.

Over 2020, which i think is actually conservative now in q4, 2020 - that growth figure for 2021 was only 37 only 37. I know it's crazy, but it increased from 37 to 50 in just one quarter, and here is why i think the number will end up even higher than that. The amd semi-custom unit is growing at an insane rate. This is a part of their enterprise.

Half of the business where, instead of providing the same fixed products that are sort of plug and play into the cloud server farms, they manufacture custom chips. If you're wondering who they're selling these custom chips to the latest microsoft xbox series x and the playstation 5, both run on amd processors, the new tesla model s and model x, cars that are just launched are also both powered by a custom, powerful amd processor. That should be able to support full self driving when that's released and behind the scenes there are dozens of other applications and other companies that are not as publicly known too. The rest of the enterprise segment is going to continue to accelerate, while amd is offering ridiculous levels of performance at really good prices.

At the moment, amd is still restricted on the speed at which they can supply their components, which is restricting the level of growth to the you know, relatively modest figures that i just mentioned. Like everybody else in the industry, the global chip shortage is affecting them, although, as you can see from the numbers that i'm showing you here, the truth is there is no chip shortage. There is just a huge spike in demand the outcome the same, but the reason is entirely different and a spike in demand is definitely much much better for businesses like amd than a chip shortage. So amd is saying that they expect 50 growth in 2021 versus 2020, which would result in about 14.6 billion dollars in revenue.

But if i take their 6.14 billion revenue that they earned in the 2020 consumer business side and grow it by 45, that is growing at the moment, then i get 8.9 billion and if i then take the 3.6 billion from the commercial side from 2020 and grow, It by just 120 because of everything i told you - i get 16.8 billion in revenue, which is a lot of upside and i'm growing the commercial side at a fraction of what it's actually currently growing at at the moment. So if i go with those numbers, i get a 2021 ebitda of just under 3.5 billion dollars and i then reduced the rate of growth down here on theater about 32 percent in five years time to be conservative. Yes, it does sound crazy, does sound insane. I'm saying conservative about numbers where yearly growth rates are somewhere in the 40 region, but that is literally what we're looking at and that is way below what they're running at the moment is it doable? Well, i have revenues of 22 billion for amd in 2026.

It's in five years time, and that is for a company that is currently wiping the floor with their competition in terms of product, and that is sitting years literally years ahead in terms of development and that competition has just posted revenues of 77.9 billion dollars in 2020. With an ebitda of 37.9 billion dollars, so if i'm honest, there is plenty of space to grow even without the market expanding but the rate at which the market is exploding. I actually think i might be a bit conservative here. I know the word conservative does not sound right in this context, but you know what i mean so i've gone and scaled the assumptions for depreciation, amortization, working capital flow and capital expenditure relative to the revenue and i've assumed a tax rate of 21 flat.

Here it looks like joe biden actually giving up on his plans of a 28 corporation tax rate increase, and i'm not convinced that, even if he did go back to it that he would be able to pass so i've stuck with that current rate of 21. For now, i've then used a discount rate of 10 percent. I know there's going to be somebody out there who disagrees, because this is a high growth tech business and it should be higher because inflation might go up, but it's also a mature mature company. It is a market leader that only has 300 million dollars worth of debt and 1.7 billion in actual literal physical cash, so that number works perfectly fine.

For me remember, these are just my numbers, i don't know the future and these numbers are probably going to be very wrong. So if you want to go, invest in amd yourself or not, invest in amd, do your own research run your own numbers, i'm just sharing. My opinion, don't listen to trump's on youtube, make sure you do your own homework so anyway, i've set a five percent rate of growth for the long term calculation - some might say: that's racy, because often people said it a bit lower than that, but it seems wrong To go lower than that, given the rate of growth that i'm seeing all the way to 2026 in this exact same model. So, on the ebitda multiple, i said a super conservative 12 times multiplier and i think in five years time for a business that is going through the rate of growth they're going.

That is probably at least at least a factor of two out from what it'd actually be, but let's not get too carried away and let's be conservative, because if there's a bigger upside, i'm only going to be more happy so based on these numbers, a quick calculation Gives me a target price of 121 using the perpetual growth model or 151 using the terminal value multiplier? Now i prefer to stay closer to the first one and it's more conservative, so i'm placing a rough 125 price target for amd, which unbelievably, i actually think is conservative. It means i have an upside of about 50 percent and that's why i'm investing quite heavily into amd at the moment in my portfolio on steak, by the way, if you want to go and try steak out, i actually really like the app and i'm using it More and more go and use my link in the description below and you'll get a free share worth at least 11.30 for depositing 50 pounds, which is not bad at all. If you enjoyed this video and want to see more like it, please go and hit that like button for the youtube algorithm. Thank you so much for watching.

I really really appreciate it and, as always i'll see you guys later.