Advanced Micro Devices Inc. (NASDAQ:AMD)

The analysis of the annual financial data reveals significant shifts in profitability and capital structure over the observed periods. Initially, the Net Operating Profit After Taxes (NOPAT) demonstrated robust growth, rising from $1,330 million to $3,517 million between the first two periods. However, this positive trend reversed sharply in the subsequent years, resulting in negative NOPAT values of -$138 million and -$201 million, before partially recovering to a positive $621 million in the final period.

The Cost of Capital remained relatively stable throughout the years, fluctuating marginally around an average of approximately 21.8%. This stability suggests that the weighted average cost of funds used by the company did not experience significant volatility during the examined time frame.

Invested Capital displayed a dramatic increase, moving from $4,364 million in the earliest period to an exceptionally high $58,525 million in the third period. It then maintained figures above $57 billion for the following two years, indicating substantial capital investments or acquisitions. This surge in invested capital juxtaposes the company's fluctuating operational performance.

Economic Profit, which reflects the value created beyond the cost of capital, mirrors the pattern seen in NOPAT but with more pronounced negative impacts in later years. While the initial periods showed positive Economic Profit figures of $375 million and $2,158 million respectively, there was an abrupt decline to highly negative values exceeding -$12 billion in the following years. These losses suggest that the returns generated were insufficient to cover the high cost of invested capital during those years, indicating deteriorating capital efficiency.

Overall, the data illustrate a company experiencing significant operational challenges after an initial phase of profitability growth. The sharp increase in invested capital has not translated into proportional economic value added in the recent years. The partial recovery in NOPAT in the final period may indicate early signs of operational improvement. However, the persistent negative Economic Profit highlights ongoing concerns regarding the effective utilization of capital and value creation.

The financial data reveals fluctuating profitability and operational efficiency over the five-year period under review.

Net Income

Net income experienced growth from 2020 to 2021, increasing from 2,490 million US dollars to 3,162 million US dollars. However, it sharply declined in 2022 to 1,320 million US dollars, and further decreased in 2023 to 854 million US dollars. In 2024, there was a recovery with net income rising to 1,641 million US dollars, though it remained below the peak values seen in 2020 and 2021.

Net Operating Profit After Taxes (NOPAT)

NOPAT displayed a volatile pattern during the same period. It increased significantly from 1,330 million US dollars in 2020 to 3,517 million US dollars in 2021, indicating strong operational performance. However, in 2022 and 2023, NOPAT turned negative, with losses of 138 million US dollars and 201 million US dollars respectively, suggesting operational inefficiencies or extraordinary expenses. In 2024, NOPAT returned to a positive figure of 621 million US dollars, though this value remained substantially lower than the earlier years.

Overall, the data indicates that while the company demonstrated solid profitability growth through 2021, it subsequently faced challenges in maintaining operational profitability, as seen in the negative NOPAT values for two consecutive years. The partial recovery in 2024 suggests improvements but does not yet reflect a full return to previous performance levels. The divergence between net income and NOPAT in the recent years may warrant further examination to understand underlying causes such as non-operating items or tax impacts.

Income Tax Provision (Benefit)

The income tax provision exhibited considerable volatility over the reported periods. It began with a significant tax benefit of -$1,210 million in 2020, indicating a tax gain or credit. This shifted to a tax expense of $513 million in 2021. Subsequently, the tax provision returned to a benefit state in 2022 and 2023, with figures of -$122 million and -$346 million respectively, before moving back to a tax expense of $381 million in 2024. These fluctuations suggest variability in taxable income or changes in tax strategies and regulations, impacting the company’s tax obligations year over year.

Cash Operating Taxes

The cash operating taxes demonstrated an overall upward trend during the period under review. Starting from a relatively low base of $24 million in 2020, the amount escalated to $214 million in 2021. This increase continued sharply to $1,392 million in 2022, followed by a decline to $658 million in 2023. However, in the final period, cash taxes rose again to $1,531 million in 2024, marking the highest value recorded in the series. This pattern indicates increased cash tax payments despite the oscillation in reported tax provisions, which could reflect timing differences between accounting tax expense and actual tax payments or changes in the company’s taxable income and cash flows.

Total reported debt & leases

The total reported debt and leases experienced a moderate increase from 572 million USD in 2020 to 732 million USD in 2021. However, there was a significant surge in 2022, reaching 2956 million USD, more than quadrupling the previous year's amount. Following this peak, the debt slightly increased to 3109 million USD in 2023 before declining to 2321 million USD in 2024. Overall, despite fluctuations, the values remain substantially elevated relative to the initial years, indicating increased financial leverage or obligations.

Stockholders’ equity

Stockholders' equity showed steady growth from 5837 million USD in 2020 to 7497 million USD in 2021. A substantial rise occurred in 2022, jumping dramatically to 54750 million USD, with continued growth in subsequent years reaching 55892 million USD in 2023 and 57568 million USD in 2024. This marked increase in equity suggests either significant retained earnings, capital infusions, or revaluation adjustments with an emphasis on strengthening the company's financial foundation over time.

Invested capital

Invested capital followed a similar trend to stockholders' equity, beginning at 4364 million USD in 2020 and increasing to 6195 million USD in 2021. A notable surge occurred in 2022, reaching 58525 million USD, which was maintained with a slight decrease to 57883 million USD in 2023 and a minor uptick to 58227 million USD in 2024. The fluctuations suggest strategic capital allocation or acquisitions that contributed to a substantial increase in the total capital invested in the business.

Economic Profit

The economic profit experienced a significant increase from 375 million US dollars in 2020 to 2158 million US dollars in 2021. However, from 2022 onwards, there is a marked decline with economic profits turning negative, recording substantial losses. The losses slightly decreased in magnitude from -12785 million US dollars in 2022 to -12073 million US dollars in 2024, indicating some improvement but remaining in negative territory.

Invested Capital

Invested capital displayed a strong upward trend, starting from 4364 million US dollars in 2020 and increasing steadily to 6195 million US dollars in 2021. After 2021, there was a dramatic surge, with invested capital reaching 58525 million US dollars in 2022, and remaining relatively stable but slightly fluctuating through 2023 and 2024, with values around 57883 and 58227 million US dollars respectively.

Economic Spread Ratio

The economic spread ratio, which reflects the return over the cost of capital, showed positive values in 2020 and 2021, with a robust increase from 8.59% to 34.84%. From 2022 onwards, this ratio turned sharply negative, aligning with the negative economic profits. It remained consistently negative in the range of approximately -20% to -22%, demonstrating a sustained period where returns did not cover the cost of capital.

Summary

The data reveals a period of strong economic performance up to 2021, characterized by rising economic profit and invested capital as well as a high economic spread ratio. Starting in 2022, the company entered a phase of significant financial distress, with large negative economic profits, a drastic increase in invested capital, and a consistently negative economic spread ratio. This suggests a substantial erosion of value and challenges in generating returns above the cost of capital despite heavy investment.

The financial data reveals notable fluctuations in key performance indicators over the five-year period under review.

Net Revenue

Net revenue exhibited a consistent upward trend from 9,763 million US dollars in 2020 to 25,785 million US dollars in 2024. This represents a significant growth, with the most substantial yearly increase occurring between 2020 and 2021. Although there was a slight decline in 2023 compared to 2022, the overall trajectory remained positive with a recovery and further growth in 2024.

Economic Profit

The economic profit data show a different pattern. After increasing from 375 million US dollars in 2020 to 2,158 million US dollars in 2021, economic profit sharply declined into negative territory beginning in 2022, with continuing losses through 2023 and 2024. The magnitude of the negative economic profit grew substantially, indicating increased economic losses despite rising revenues.

Economic Profit Margin

This margin mirrors the economic profit trend. It rose from a positive 3.84% in 2020 to a peak of 13.13% in 2021, then reversed dramatically, reaching negative margins exceeding -50% from 2022 to 2024. Although the margin improved slightly in 2024 compared to 2023, it remained deeply negative, implying that revenues were not translating into economic profit and likely indicating increased cost pressures or capital charges exceeding earnings.

In summary, while top-line growth has been robust and generally sustained, profitability on an economic basis has deteriorated considerably after 2021. This divergence suggests challenges in converting increased revenues into economic profit, highlighting potential issues related to operating efficiency, cost management, or capital utilization during the most recent years.