AMD Q3'2024 Financials
morethanmoore.substack.com
morethanmoore.substack.com
Nvidia P/E ratio is ~65
Yet I constantly hear how Nvidia is overvalued.
Company just put up ~7B in a quarter at 50% gross margin. Market cap is 240B. So about 9x a year's revenue, for a fabless semiconductor company. Looks crazy cheap to me, '132' P/E ratio and all.
To try to play the anti-nvidia side, they are in a very good position now, but at 65 P/E where do they grow beyond the current frothy expectations so new investors can see stock price appreciation? Especially with companies seeing the profits desiring to compete.
With AMD, you can see past performance with higher earnings and be optimistic that they can hit past earnings bringing the P/E ratio into alignment.
That's the bear perspective.
Looking at Morgan Stanley's estimates for NVDA, their base case values them at $150.00 12 months from now, which is ~42x CY25 EPS of $3.57. According to the same report, the mean consensus estimate is ~$137.88 which if you assume the same EPS, equates to ~38.6x (this is from an Aug 29, 2024 report, which came out after NVDA's latest earnings, as usual)
For AMD, in the report that came out yesterday, the analysts values them at $169.00 which is ~43x FY2025 EPS of $3.94, below consensus estimates of $188.77 which imply a ~47.9x forward P/E ratio
Now this comes with a bunch of caveats like the different dates, the fact that each analyst has their own view on forward EPS, the fact that I picked just a couple of reports instead of looking at all analysts, the different periods from AMD's FY 2025 vs. NVDA's CY 2025... but two things appear to remain true: (1) trailing PE multiples are useless and the sooner we stop mentioning them the better and (2) the discrepancy in multiples you pointed out doesn't hold up to scrutiny
Diligencing the above caveats is left as an exercise to the reader
But at least it's more connected to the actual current value of the stock seeing that it is defined by future not past cash flows
It doesn't matter if those are the right cash flows, you're really trading based on the market's expectations of those cash flows anyway
Clever!
But it does make the opposition's point: while many will never acknowledge trouble in hindsight,it's much less common to acknowledge trouble in foresight ;)
Re: trouble in foresight, analysts and practitioners try to account for that by creating scenarios. Note I cited the base case for the Morgan Stanley reports, but those also include a bear case and a bull case. Naturally those still depend on assumptions...
Trailing P/E needs less caveats but is also less predictive.
There's a lot more wealth tied up in Nvidia, so there is more interest and worry. They are also more associated with hyped up tech like Bitcoin and AI. Whether you believe in those technologies in the long term determines whether you're likely to think Nvidia can maintain.
With everyone dumping on Intel lately, AMD also looks like the primary CPU manufacturer.
I have no idea what will happen, or what either is worth. But like Apple, at some point the market is the limiting factor, not the company.
It's impressive that Nvidia has been delivering explosive growth in their earnings to match their valuation, but it is valid to be concerned whether the world can keep investing in GPUs like this sustainably.
Nvidia EV/EBITDA is 54.64
https://www.investopedia.com/ask/answers/072915/how-can-eveb...
It seems like neither P/E ratio nor EV/EBITDA is a perfect measure. EV/EBITDA excludes capital expenses, but it also excludes amortization costs, which for AMD means the Xilinx acquisition.
They are seriously hurting Intel in the datacenter space, but Intel is not dead yet and their accelerator have so far seen very small adoption. They are fabless meaning that their margins are capped, x86 mobile CPUs are under attack from ARM and all hyperscalers are working on their own accelerator with some degree of success. They won't move to AMD GPUs.
They are a good company putting out great hardware, but at the current price I just don't get it.
Fabless means the capex is tiny. The hyperscalars have been trying to follow Google's TPU approach for a decade now. Whole load of silicon startups came to life, set fire to a lot of VC money, died off in the same time period.
I believe AMD is the most likely winner of the silicon age. Progress is slower than one would like but everything is heading in the right direction.
A lot of the crypto boom is over. If the AI boom fizzles, and nVidia goes back to selling GPUs for gamers, an admittedly niche market, that's going to be a hell of a haircut.
If AMD has to retreat to that, well, they've lost far less, and they have a successful CPU product line to lean on.
High-end gaming PCs became vastly more expensive over the last few years, between general post-Covid inflation and the chip shortage allowing high-end graphics card prices to be pushed well into 4-figure territory.
Other than those very expensive GPUs, performance improvements elsewhere have come slowly. And on top, Microsoft is doing their best to push people away from Windows. And the VR bubble has deflated.
AAA game development is a seriously struggling industry with little tolerance for risk/innovation, fewer releases, and many high-profile failures. And most of the really popular games can be played well on a 10-year-old PC or a console.
This meme of "dying PC gaming" is being repeated since like 1998 while the actual sales numbers show consistent growth of that market over last years.
Neither Sony nor MS are doing strict console exclusivity anymore, with MS going as far as to put out their own IPs on Sony consoles.
MS claims there's going to be a next Xbox, but I honestly wouldn't be surprised if it's basically a computer with some custom version of windows with a console-tailored UI.
So in some ways, PC gaming is healthier than it's ever been as it is gaining a growing market share as the console market share shrinks.
I think what's happening in the PC space is that we've reached a kind of Moore's law for graphical fidelity where we're deep in the diminishing returns part of the curve. Look at Read Dead Redemption 2 for example. It's 6 years old and still goes toe to toe with games coming out now. By contrast compare Crysis (2007) to anything that came out in 2001. Halo, for example. It's a night and day difference. So yeah the highest end hardware (specifically GPUs) has gotten crazy expensive but it's also gotten crazy overkill. A lot of new games are playable on low to mid settings on older and/or more budget hardware, and low settings still look fantastic on many games.
Add to that there's a general distrust right now of AAA studios to actually make a decent product, really great stuff coming out of AA/indie studios, and a lot of people playing only one or two live service games like CoD or Fortnight instead of playing lots of different AAA games and there's less dollars to get thrown at every new 100 million dollar budget game that comes out.
I think we're close to the point where the AAA publishers wake up and realize that it's not tenable for every game that comes out to have 100+ hours worth of content and cost 100+ million dollars, and the industry will be better for it.
I presume you mean PC, but still this is situation for past 2 decades. PS used to run on Unix, I guess they still do, on very much a PC hardware, just not the exactly same chips you can buy on PC.
Xbox even more so, its ridiculously expensive to come up with your own cpu & gpu, all use amd/intel and amd/nvidia and definitely not the top of the ranges. OS should be skinned Windows with maybe some non-core parts cut off (but I presume telemetry remains).
The only one building non-PC consoles is Nintendo, which uses which uses very much cell phone hardware (but more custom IIRC).
You can actually play the original Crysis maxed out at 60 FPS on modern integrated GPUs. Crazy.
The consumer gpu's were unobtainium during COVID. You can't make money if you don't even have cards to sell. Then rx7000 series offered a pretty minimal upgrade.
I'm very hopeful I might finally upgrade my rx580. An affordable chip that did pretty great. RDNA4 sounds similar, after their expensive multi-chip flagship got cancelled a long while back.
It just feels absurd that AMD is slacking so hard here. Nvidia got where they are by selling consumer cards that ran CUDA well. AMD seems to think their high margin data-center GPUs don't need any consumer market to succeed and maybe they are right but it's such a gamble to have ROCm with so few consumer offerings available for it, so have such a decaying consumer side.
We are in a very bad situation due to global wars, excess COVID money (a lot of which went to rich people who pumped up the stock market) and an energy crisis induced by sanctions and the Nordstream terrorism act. No company in Germany will buy expensive CPUs, they barely survive. Global revenue matters ...
Things are not fine, but companies still can afford to buy Nvidia cards.
The damaging of the Nordstream pipeline wasn't terrorism. It was an act of sabotage. Nobody was terrorized.
I don't see any current energy crisis.
https://www.macrotrends.net/2480/brent-crude-oil-prices-10-y...
Germany has narrowly avoided recession, at least for now.
https://www.theguardian.com/world/2024/oct/30/german-economy...
> Economists said the inflation shock that followed Russia’s invasion of Ukraine – sparking a dramatic increase in energy and food prices that undermined business and consumer confidence across the eurozone – was beginning to ease.
Inflation is moderating.