Is AMD making money from Gaming?
Chip and processor maker AMD is having an exceptional year. In 2020, Advanced Micro Devices’ (AMD) stock price rose from $49.10 on 2 January 2020 to $85.07 on 24 November 2020.
I think the reason for Mr. Market’s interest in AMD is easy to see. AMD (NASDAQ: AMD) is cheap compared to rival NVIDIA (NASDAQ: NVDA). Mr. Market was paying $518.31 for NIVIDA (NVDA) shares on 24 November 2020.
Investors love NVIDIA and AMD because of the growing popularity of gaming. Similarly to NVIDIA, AMD makes many gaming products including processors, laptops, graphics cards, embedded chips, server solutions, and powered systems.
How Coroanvirus boosts AMD
In particular, the AMD Ryzen desktop processors offer enormous amounts of processing power for remote workers and gamers. To elaborate, I think AMD is in a wonderful position because of the coronavirus.
First, millions the coronavirus has stuck millions of gamers at home with nothing to do in their spare time but game. Hence, many of those people will upgrade their gaming technology.
Second, millions more people are working from home and many of them will require more processing power. Architects, accountants, engineers, designers, software engineers, website designers, traders, artists, video game designers, and animators are just a few of the professionals who can work from home – if they have a desktop with a powerful processor.
How Remote Work helps AMD (AMD)
For example, Gallup estimates 33% of US workers were always working remotely in October 2020.
In addition, 25% of Americans say they work remotely sometimes. Plus, two-thirds of remote workers want to keep working remotely. Hence, 58% of Americans work remotely if Gallup is correct.
Those numbers could increase when coronavirus spikes again. Gallup estimates 51% of Americans were working remotely in April 2020.
Therefore, tens of millions of people could need powerful processors and their employers could pay for it. I think organizations will pay for powerful processors because they want their companies to stay in business and keep making money.
An investment bank, for instance, can keep trading if its bankers have computers with fast processors at home. Hence, the investment bank as a powerful incentive to buy every banker a computer with a powerful processor.
Likewise, video game designers, moviemakers, and animators could work from home with fast graphics processors. Architects could design buildings or houses from home with fast processors.
AMD’s Growing Market
Gaming has become one of the largest and most potent sectors of entertainment. For instance, Statista estimates there were 1.5 billion gamers in the Asia-Pacific region in 2020.
Asia-Pacific gamers spent $78.3 billion on video games in 2020, Statista estimates. Moreover, the average gamer worldwide spent $123 on games in a three-month period in 2018, Statista estimates. Hence, Statista estimates the average gamer spent $492 a year, nearly $500, on games in 2018.
Notably, Statista estimates the number of gamers in the world will grow to three billion gamers by 2023. Statista estimates there were 2.7 billion gamers worldwide in 2020. Moreover, Statista estimates that 66% of Americans played games in 2018, that percentage grew from 58% in 2013.
Therefore, AMD manufactures the components people need for the world’s most popular hobby. Furthermore, that hobby is growing in popularity.
AMD’s Astonishing Revenue Growth
I think AMD’s revenue growth supports my thesis that increased gaming and work-from-home drives processor sales.
Stockrow estimates AMD’s revenues grew at a rate of 55.52% in the quarter ending on 30 September 2020. The quarterly revenue growth rate rose from 26.19% on 30 June 2020 and 40.41% on 31 March 2020. However, AMD began 2020 with a quarterly revenue growth rate of 40.41% on 31 December 2020.
In 2020, AMD’s quarterly revenues went from $2.127 billion on 31 December 2019 to $2.801 billion on 30 September. Additionally, AMD reported quarterly revenues of $1.786 billion on 31 March 2020 and $1.932 billion on 30 September 2020.
Thus, AMD (AMD) is experiencing remarkable growth during a pandemic, which is why growth investors buy it.
How Much Money Does AMD Make?
AMD (NASDAQ: AMD) reported a quarterly gross profit of $1.23 billion on 30 September 2020. The quarterly gross profit grew from $949 million on 31 December 2020 and $848 million on 30 June 2020.
Impressively, AMD’s quarterly operating income grew from $173 million on 30 June 2020 to $449 million on 30 September 2020. In contrast, AMD’s quarterly operating income grew from $186 million on 30 September 2019 to $348 million on 31 December 2019. In 2020, the quarterly operating income dropped to $177 million on 31 March.
On 30 September 2020, AMD reported a quarterly operating cash flow of $339 million. The quarterly operating cash flow fell from $442 million on 31 December 2019 and rose from -$65 million on 31 March 2020 and $243 million on 30 June 2020.
How Much Cash does AMD Generate?
However, AMD (AMD) reported a quarterly ending cash flow of -$479 million on 30 September 2020. That ending cash flow is not as bad as it sounds because AMD reported a quarterly financing cash flow of -$269 million on the same day. That means AMD paid $269 million in debts.
AMD began 2020 with a quarterly ending cash flow of $309 million on 31 December 2019 that rose to $1.334 billion on 31 March. Hence, AMD can generate enormous amounts of cash.
Consequently, AMD reported $1.711 billion in cash and short-term investments on 30 September 2020. The cash and short-term investments rose from $1.503 billion on 31 December 2019 and fell from $1.775 billion on 30 June 2020.
AMD’s value has grown in 2020. AMD reported total assets of $6.028 billion on 31 December 2019 that rose to $7.023 billion 30 September 2020.
AMD vs. NVIDIA (NVDA)
AMD is still small in comparison to NVIDIA (NVIDIA). NVIDIA reported $10.139 billion in cash and short-term investments and total assets of $24.881 billion on 30 September 2020.
Moreover, Stockrow estimates NVIDIA had a 56.8% revenue growth rate in the quarter ending on 31 October 2020. NVIDIA reported quarterly revenues of $4.726 billion, a quarterly gross profit of $2.96 billion, and a quarterly operating income of $1.398 billion.
Furthermore, NIVIDA reported a quarterly operating income of $1.279 billion on Halloween Day 2020. However, NVIDIA reported an ending cash flow of -$12.22 billion on 31 October 2020. Conversely, NVDIA reported an ending cash flow of $15.494 billion on 31 March 2020.
Thus, NVIDIA is a lucrative company that generates enormous amounts of cash. Yet NVIDIA has many similarities to the cheaper AMD (NASDAQ: AMD).
NVIDIA is the Widows and Orders stock in gaming
However, I consider NVIDIA a far better stock than AMD. Notably, AMD pays no dividend, so it offers ordinary people no margin of safety.
Conversely, NVIDIA will pay a 16₵ dividend on 3 December 2020. Overall, NVIDIA shares offered a 64₵ annual dividend and a 0.12% dividend yield on 20 November 2020.
If you want a widows and orphans stock in gaming and processors, NVIDIA is still your choice. However, if you want a cheap growth stock in processors and gaming, AMD is worth investigating.