Advanced Micro Devices Inc. (NASDAQ:AMD)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) experienced substantial volatility, beginning with a positive value in 2021, followed by negative values in 2022 and 2023, a partial recovery in 2024, and a strong positive result in 2025. Invested capital increased considerably from 2021 to 2022, then stabilized with minor fluctuations through 2025. The cost of capital remained relatively consistent across the entire period. Consequently, economic profit exhibited a marked decline from 2021 to 2025, remaining negative throughout the majority of the analyzed timeframe.

NOPAT Trend

NOPAT began at US$3,517 million in 2021, decreased to a loss of US$-138 million in 2022, and further deteriorated to a loss of US$-201 million in 2023. A recovery was observed in 2024, with NOPAT reaching US$621 million, before increasing substantially to US$4,525 million in 2025. This indicates a period of initial profitability followed by losses, and then a return to, and surpassing, prior profitability.

Invested Capital Trend

Invested capital rose dramatically from US$6,195 million in 2021 to US$58,525 million in 2022. It then experienced a slight decrease to US$57,883 million in 2023, followed by a minor increase to US$58,227 million in 2024, and a further increase to US$61,734 million in 2025. The substantial increase in 2022 suggests a significant capital investment during that year.

Cost of Capital Stability

The cost of capital remained stable throughout the period, fluctuating between 28.84% and 29.28%. This consistency suggests that the company’s risk profile, as perceived by investors, did not change significantly during the analyzed years.

Economic Profit Performance

Economic profit started at US$1,703 million in 2021, then plummeted to US$-17,017 million in 2022, and further decreased to US$-17,056 million in 2023. While it improved to US$-16,325 million in 2024, it remained negative. The final year, 2025, showed a reduction in the negative economic profit to US$-13,440 million, though still representing an economic loss. The negative economic profit across most of the period indicates that the company’s returns did not exceed its cost of capital.

The divergence between the NOPAT and economic profit trends is largely attributable to the significant increase in invested capital. While NOPAT recovered in later years, the higher capital base meant that the returns generated were insufficient to cover the cost of that capital, resulting in continued negative economic profit.

The financial performance, as indicated by Net Income and Net Operating Profit After Taxes (NOPAT), exhibits significant fluctuations over the five-year period. While Net Income demonstrates volatility, NOPAT reveals a more pronounced pattern of instability, including a period of negative profitability.

Net Income Trend

Net Income increased from US$3,162 million in 2021 to US$1,320 million in 2022, representing a substantial decrease. It continued to decline to US$854 million in 2023 before recovering to US$1,641 million in 2024. The most recent year, 2025, shows a significant increase to US$4,335 million, exceeding the 2021 level.

NOPAT Trend

NOPAT began at US$3,517 million in 2021. A dramatic shift occurred in 2022, with NOPAT falling to a loss of US$138 million. This negative trend continued into 2023, with NOPAT reaching a loss of US$201 million. A recovery began in 2024, with NOPAT returning to positive territory at US$621 million. The most recent year, 2025, shows a substantial increase in NOPAT to US$4,525 million, surpassing the initial value in 2021.

The divergence between Net Income and NOPAT suggests potential differences between accounting profit and true economic profit. The negative NOPAT values in 2022 and 2023 indicate that the company’s operating profits, after accounting for taxes, were insufficient to cover the cost of capital employed during those periods. The substantial increase in both Net Income and NOPAT in 2025 suggests a significant improvement in operational efficiency and/or market conditions. The recovery in NOPAT from negative values to a level exceeding the initial value indicates a strengthening of the company’s ability to generate returns above its cost of capital.

Relationship between Net Income and NOPAT

While both metrics generally move in the same direction, the magnitude of change differs. The larger fluctuations observed in NOPAT suggest it is more sensitive to underlying operational performance and capital costs than Net Income. The period of negative NOPAT while Net Income remained positive indicates the presence of significant non-cash expenses or a high cost of capital relative to operating profits.

Further investigation into the factors driving these fluctuations, particularly the causes of the negative NOPAT in 2022 and 2023, would be beneficial for a comprehensive understanding of the company’s financial health.

The income tax provision and cash operating taxes exhibit considerable fluctuation over the observed five-year period. A notable divergence between the two metrics is apparent, suggesting significant non-cash tax effects are present.

Income Tax Provision

The income tax provision initially registers a value of 513 million in 2021. This is followed by a benefit of 122 million in 2022, and a larger benefit of 346 million in 2023. A return to a provision of 381 million is seen in 2024, before reverting to a benefit of 103 million in 2025. This pattern indicates substantial changes in taxable income or the utilization of tax loss carryforwards.

Cash Operating Taxes

Cash operating taxes begin at 214 million in 2021, increasing dramatically to 1,392 million in 2022. The value then decreases to 658 million in 2023, and rises again to 1,531 million in 2024. Finally, a significant outflow reversal is observed in 2025, resulting in a negative value of -365 million. This suggests substantial tax refunds or credits were received in 2025.

The substantial difference between the income tax provision and cash operating taxes across the period highlights the impact of items such as deferred taxes, tax credits, and potentially net operating loss carryforwards. The large positive value for cash operating taxes in 2022 and 2024, coupled with the negative value in 2025, warrants further investigation to understand the underlying drivers of these cash flows. The volatility in both metrics suggests a complex tax position and potential sensitivity to changes in tax regulations or business performance.

Relationship between Metrics

The considerable discrepancies between the income tax provision and cash operating taxes indicate that reported earnings are not necessarily reflective of actual cash outflows for taxes. This difference is particularly pronounced in 2022, 2023, and 2025, where the divergence is substantial. A detailed analysis of the deferred tax assets and liabilities would be necessary to fully understand these variations.

The reported invested capital demonstrates significant fluctuation over the observed period. Initially, a substantial increase is noted, followed by relative stabilization and a subsequent rise towards the end of the period. A detailed examination of the components contributing to invested capital reveals key trends in the company’s financial structure.

Invested Capital Trend

Invested capital experienced a dramatic increase from US$6,195 million in 2021 to US$58,525 million in 2022. This represents a nearly tenfold increase, likely driven by significant financing activities. Following this surge, invested capital decreased slightly to US$57,883 million in 2023, indicating a potential stabilization or adjustment in capital allocation. A modest increase to US$58,227 million occurred in 2024, before rising again to US$61,734 million in 2025.

Debt & Leases

Total reported debt and leases exhibited a substantial increase from US$732 million in 2021 to US$2,956 million in 2022. This increase aligns with the overall rise in invested capital during the same period, suggesting debt financing played a role. The debt level remained relatively stable in 2023 at US$3,109 million, then decreased to US$2,321 million in 2024. A notable increase to US$4,006 million is observed in 2025, indicating renewed reliance on debt financing.

Stockholders’ Equity

Stockholders’ equity demonstrated a significant increase from US$7,497 million in 2021 to US$54,750 million in 2022. This substantial growth likely reflects retained earnings and/or equity issuance. Stockholders’ equity continued to grow, albeit at a slower pace, reaching US$55,892 million in 2023, US$57,568 million in 2024, and US$62,999 million in 2025. This consistent growth suggests a strengthening of the company’s equity base.

The interplay between debt and equity significantly influences the overall invested capital. The initial surge in invested capital in 2022 was largely attributable to a combination of increased debt and a substantial rise in stockholders’ equity. The subsequent fluctuations in invested capital reflect changes in both debt levels and equity positions. The increase in debt in 2025, coupled with continued equity growth, suggests a strategic approach to capital structure management.

The economic spread ratio exhibits a volatile pattern over the five-year period. Initially positive, it transitions to negative values and demonstrates a gradual, though uneven, improvement towards the end of the observed timeframe.

Economic Spread Ratio

In 2021, the economic spread ratio stood at 27.49%. This indicates a substantial positive spread, suggesting the company generated returns significantly exceeding its cost of capital. However, a dramatic shift occurred in 2022, with the ratio plummeting to -29.08%. This signifies that returns fell considerably short of the cost of capital.

The ratio remained negative in 2023, at -29.47%, representing a slight deterioration from the prior year. A modest recovery is observed in 2024, with the ratio increasing to -28.04%. This suggests a limited improvement in the relationship between returns and the cost of capital.

The most recent year, 2025, shows a further improvement, with the economic spread ratio reaching -21.77%. While still negative, this represents the highest value in the latter part of the period, indicating a lessening of the gap between returns and the cost of capital.

The invested capital demonstrates a substantial increase from 2021 to 2022, followed by relative stability and a further increase in 2025. This increase in invested capital occurred concurrently with the decline in economic profit, contributing to the negative economic spread ratio observed from 2022 onwards.

Economic Profit & Invested Capital Relationship

The initial positive economic spread ratio in 2021 was supported by a positive economic profit of US$1,703 million. However, the subsequent decline into a significant economic loss, reaching -US$17,017 million in 2022, overwhelmed the invested capital base, driving the economic spread ratio into negative territory.

Despite fluctuations in invested capital between 2022 and 2024, economic profit remained negative, maintaining the negative economic spread ratio. The slight reduction in the magnitude of the economic loss in 2025, coupled with an increase in invested capital, resulted in a less negative economic spread ratio.

Overall, the trend suggests a period of diminishing returns relative to capital employed, followed by a gradual, though incomplete, recovery. The company’s ability to improve economic profit relative to its invested capital will be crucial for a return to positive economic value creation.

The economic profit margin demonstrates a significant and consistent decline over the observed period. Initially positive, the margin transitioned to substantial negative values and, while still negative, shows signs of improvement in the most recent year presented.

Economic Profit Margin Trend

In 2021, the economic profit margin stood at 10.36%. This represents a period where economic profit exceeded the cost of capital. However, a dramatic shift occurred in 2022, with the margin plummeting to -72.10%. This decline continued into 2023, reaching -75.20%, the lowest point in the observed timeframe. A moderate recovery is evident in 2024, with the margin improving to -63.31%. This trend of improvement continues into 2025, with the margin reaching -38.80%.

The movement in economic profit directly correlates with the economic profit margin. A positive economic profit in 2021 supported the positive margin. The subsequent negative economic profits in 2022 through 2025 are reflected in the increasingly negative, and then moderating, margin values.

Revenue and Margin Relationship

Net revenue increased from US$16,434 million in 2021 to US$34,639 million in 2025. Despite this substantial revenue growth, the economic profit margin remained negative for the majority of the period. The improvement in margin observed in 2024 and 2025 suggests that while revenue is increasing, the company is beginning to manage its capital costs more effectively, or that the increase in revenue is outpacing the cost of capital. However, the margin remains considerably below the 2021 level.

The substantial negative economic profit margins in 2022, 2023, and 2024 indicate that the cost of capital significantly exceeded the economic profit generated during those years. The recent trend towards a less negative margin in 2025 suggests a potential shift in the company’s ability to generate returns sufficient to cover its capital costs, though further monitoring is required to confirm a sustained positive trend.