Advanced Micro Devices Inc. (NASDAQ:AMD)

The financial data reflects significant volatility in the company's operating performance and economic profitability over the analyzed periods. A detailed examination of key metrics provides insight into the underlying trends and financial health.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited considerable fluctuations, starting at $1,330 million in 2020 and improving markedly to $3,517 million in 2021. However, this positive trend reversed sharply in subsequent years, with losses recorded at $138 million in 2022 and $201 million in 2023, before partially recovering to a profit of $621 million in 2024. This pattern suggests increasing operational challenges or one-time costs impacting profitability after 2021.

Cost of Capital

The cost of capital remained relatively stable across the periods, hovering just above 21%, with minimal variation (21.67% to 21.71% from 2020 to 2021, then slightly decreasing to about 21.4%-21.6% thereafter). This stability indicates that financing conditions or perceived risk associated with invested capital did not experience dramatic changes during these years.

Invested Capital

Invested capital shows an extraordinary increase from $4,364 million in 2020 to $6,195 million in 2021, followed by a dramatic surge to over $58 billion from 2022 onward. The level remains steady around $58 billion into 2024. This substantial jump suggests a significant revaluation, acquisition, or accounting event that dramatically expanded the capital base, which may have influenced other performance metrics.

Economic Profit

Economic profit follows the trend of NOPAT but highlights the impact of the increased invested capital and cost of capital. Positive economic profit of $384 million and $2,172 million in 2020 and 2021, respectively, deteriorated sharply into large negative figures of approximately -$12.7 billion through 2022 and 2023, slightly improving to -$11.9 billion in 2024. This indicates that the returns generated were insufficient to cover the cost of capital on the vastly increased invested capital, signaling potential value destruction or underperformance relative to capital costs during the latter periods.

Overall, while the company demonstrated strong operational profitability initially, the subsequent years reveal a significant decline in performance despite a large increase in invested capital. The persistent negative economic profit underscores the company's struggle to generate returns above its cost of capital following 2021. The stable cost of capital emphasizes that the performance issues are likely related to operational or investment decisions rather than changes in capital market conditions.

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 initially increased significantly from 384 million US dollars in 2020 to 2,172 million US dollars in 2021. However, it then experienced a sharp decline, turning negative in 2022 with a loss of 12,661 million US dollars. This negative trend persisted through 2023 and 2024, with losses slightly decreasing but remaining substantial at 12,702 million US dollars and 11,948 million US dollars respectively.

Invested Capital

Invested capital showed a notable increase over the observed periods, rising from 4,364 million US dollars in 2020 to 6,195 million US dollars in 2021. Subsequently, it surged dramatically to 58,525 million US dollars in 2022 and then remained relatively stable through 2023 and 2024, with values of 57,883 million US dollars and 58,227 million US dollars respectively.

Economic Spread Ratio

The economic spread ratio exhibited a strong positive performance in 2020 and 2021, moving from 8.81% to 35.05%. However, this ratio shifted into negative territory in 2022, reaching -21.63%, and continued to decrease slightly in 2023 and 2024 to -21.94% and -20.52% respectively. This indicates a deterioration in economic value generation relative to the invested capital during these later years.

Overall Analysis

The data reveals a period of strong economic performance in 2021 following moderate profitability in 2020. From 2022 onwards, despite the substantial increase and stability in invested capital, the company has experienced significant declines in economic profit and economic spread ratios, reflecting challenges in generating returns above the cost of capital. These trends suggest that the company may be facing operational or market difficulties impacting value creation, despite maintaining a large capital base.

Net Revenue

Net revenue demonstrates a consistent upward trend over the analyzed periods, growing from approximately $9.8 billion in 2020 to about $25.8 billion by the end of 2024. This indicates a significant expansion in sales or service income, with a steady increase year-over-year, except for a slight dip in 2023 compared to 2022.

Economic Profit

The economic profit exhibits a distinctly different trajectory. Initially, there was a positive economic profit of $384 million in 2020, which then sharply increased to $2.2 billion in 2021, reflecting improved value creation beyond the cost of capital. However, from 2022 onwards, economic profit turned negative, showing substantial losses that deepen over the subsequent years, reaching approximately negative $11.9 billion by 2024. This suggests that despite growing revenues, the company faced rising costs or capital charges surpassing returns.

Economic Profit Margin

The economic profit margin, which reflects economic profit as a percentage of net revenue, corroborates the economic profit trend. After a positive margin of around 3.9% in 2020 and a peak at 13.2% in 2021, the margin deteriorates sharply starting in 2022. Negative margins greater than 50% in absolute terms prevail through 2022 to 2024, indicating that losses relative to net revenue became significantly large, undermining profitability on an economic value basis.

Overall Analysis

While the company shows strong revenue growth, underlying economic profitability has declined significantly in the latter years. Positive economic profit and margins recorded early in the period gave way to substantial negative economic profits, indicating potentially increasing operating costs, higher capital charges, or other structural profitability challenges. The sustained negative economic profit margin highlights concerns over the economic value generated relative to invested capital despite robust revenue increases.