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Comment by ckastner | Hacker News Reader

I'm a huge AMD fan but I fear that its current valuation already has an immense amount of success already priced in.

They are doing absolutely spectacular work, but there's still much to do, and there are significant risks.

They have been making progress on the GPU side, but as long as they don't provide a CUDA-like ecosystem and experience, I don't see them challenging NVIDIA soon in the accelerator market.

I'm pretty confident that they will continue to outpace Intel on the CPU side, but with Amazon's Graviton2, and the recent TOP500-success of Fugaku -- pure ARM, no accelerators - there is still a tremendous amount of competition ahead.

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If you think P/E ratio of 25 to be reasonable after the growth spurt slows down, AMD's earnings must grow

10% per year next 20 years, or

20% per year next 10 years, or

30% per year next 8 years, or

50% per year next 5 years

to get P/E 25 with current price.

I don't think the price is unreasonably high but I don't think ROI will be very high if you buy AMD today.

Looking at earnings growth as a steady process can be misleading when profit margins vary. Intel has a 26% net margin, and AMD is just over 8%, so if AMD gets Intel's pricing power their earnings could be 3X as high before any change in revenue. For a look at the pathological case, realize that a company that breaks even one year and makes a trivially small profit the next has experienced infinite earnings growth.

That being said, I agree it looks like AMD stock is priced for something spectacular to happen, which makes me more excited about their chips than their stock.

One of the most interesting aspects of investing is that the success of a company and its stock are only loosely correlated. It's entirely possible for an investor to do very poorly after investing in a company that grows a lot if the price they paid was too high (as you mention, AMD might be in such a situation right now). Conversely it's entirely possible to make excellent returns on the stock of a company that is not growing (or even shrinking) but pays out large dividends.

A market can stay irrational longer than you can stay solvent.

If you want to sit on the sidelines and watch valuations soar to unreasonable levels and not try to claim a piece of that fine, but don’t cry when you see how much you missed out. AMD could be the next NVDA.

Congratulations to those who have enjoyed AMD's stock price rise by 30x over the past few years. If you think its going to rise by another 30x, prepare to be disappointed. Another decade or more of massive growth is already priced in.

> but as long as they don't provide a CUDA-like ecosystem and experience

Let's ROC!!

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