AMD Announces Exit Opportunity for Users
In a recent valuation model, AMD's enterprise value was estimated at $101.5 billion, with an equity value of $102 billion. These figures were calculated based on several key assumptions.
The debt costs in the model were based on the company's Trailing Twelve Months (TTM) results, while equity costs were calculated using the Capital Asset Pricing Model (CAPM) method. The CAPM method employed a risk-free rate of 4.32%, a beta of 1.92, and a market return rate of 7.77%.
The model also assumed a consistent 15% tax rate, similar to previous valuation models for other semiconductor companies. It projected changes in net working capital to be 1% of sales, consistent with valuation models for other semiconductor businesses.
However, the current sales status of AMD's MI300 accelerators, as of August 2025, remains uncertain due to a lack of publicly available detailed information.
The model's assumptions reflect a 3% perpetual growth rate for AMD, consistent with semiconductor peers. Despite this growth rate, the company faces significant challenges. AMD's data center segment, which generated $3.2 billion in revenues in Q2, up 14% Year-over-Year (Y/Y), has seen a slowdown in growth compared to the 80% Y/Y growth rate from the same quarter last year.
This slowdown is partly due to supply constraints and competitive pricing from Nvidia and Intel, which are likely to limit near-term growth for AMD's Instinct MI300 accelerators. Additionally, cloud vendors are showing signs of more selective spending, with some prioritizing AI-enabled GPUs over general-purpose processors, putting pressure on AMD's EPYC server processors.
Furthermore, AMD generated only $1.1 billion in free cash flow in Q2 compared to $1.5 billion last year, despite higher overall revenue, due to higher capital spending. The upcoming releases of Zen 5 processors and MI400 GPUs will require additional marketing and manufacturing commitments, further constraining cash flow.
The model's sales and EBIT estimates are broadly aligned with market consensus over the next five years. However, on a per-share basis, the intrinsic value of AMD's equity is $62.91, representing a discount of about 64.3% to the current market price.
The discount rate in the model is 10.82%, determined by combining AMD's cost of equity and cost of debt. Despite AMD's leading position in high-performance computing, the company's growth profile is slowing, data center momentum is slowing, regulatory risks are rising, and capital expenditures are weighing on free cash flow, making the risk-to-reward profile unfavorable at current levels.
However, faster-than-expected growth in MI300 shipments, strong adoption of Zen 5-based EPYC processors, a gaming sector rebound, easing export restrictions, or favorable geopolitical events could potentially undermine the bearish views on AMD's growth. Even under these optimistic scenarios, AMD will still face strong competitive pressure from Nvidia in AI accelerators and Intel in server processors.
AMD's diversified product portfolio, including desktop, mobile, and cloud markets, could potentially lead to better-than-expected results in the following quarters due to offsetting weakness in one segment with strength in another. The company's R&D spending reached $2 billion in Q2, or 21 percent of revenue, reflecting significant investments in new architectures and technology nodes.
The U.S. Department of Commerce is tightening controls on semiconductor exports to several countries, creating uncertainty for future revenue streams across the globe. AMD, like many other semiconductor companies, is exposed to geopolitical risks, particularly in China, where American export restrictions on advanced AI chips have impacted the company's ability to sell high-performance accelerators to Chinese customers.
Gross margin growth is not expected to be significant in the near term for AMD. Despite these challenges, AMD remains a key player in the semiconductor industry, and its future performance will be closely watched by investors and analysts alike.
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