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 all periods examined.

Economic Profit Trend

Economic profit exhibited a marked decline from a positive US$1,690 million in 2021 to a substantial negative value of US$17,137 million in 2022. This negative trend persisted in 2023 with a value of US$17,176 million. While economic profit improved slightly to US$16,446 million in 2024, it remained negative. By 2025, the negative economic profit lessened to US$13,568 million, indicating some improvement but still representing a substantial shortfall.

NOPAT and Economic Profit Relationship

The movement of economic profit closely mirrors the fluctuations in NOPAT. The positive economic profit in 2021 corresponds with the positive NOPAT. The significant negative economic profit in 2022 and 2023 directly correlates with the negative NOPAT reported for those years. The partial recovery in NOPAT in 2024 is reflected in a less negative economic profit, and the strong NOPAT in 2025 leads to a further reduction in the magnitude of the economic loss.

Invested Capital and Cost of Capital

Invested capital increased dramatically in 2022, and remained relatively stable in subsequent years. The cost of capital remained consistently near 29.3%, suggesting that the changes in economic profit are primarily driven by NOPAT rather than shifts in the cost of capital or invested capital base after 2022. The large increase in invested capital in 2022, coupled with the negative NOPAT, contributed significantly to the substantial economic loss observed that year.

Overall, the analysis indicates a period of significant financial underperformance, particularly in 2022 and 2023, as evidenced by the substantial negative economic profit. While there is some indication of improvement in later periods, the company continued to generate economic losses through 2025.

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 consistently negative trend over the observed five-year period. Initially positive in 2021, the ratio transitioned to negative values beginning in 2022 and remained negative through 2025, although with a diminishing magnitude.

Economic Spread Ratio

In 2021, the economic spread ratio stood at 27.28%. This indicates that the company generated returns on invested capital exceeding its cost of capital. However, a substantial decline occurred in 2022, with the ratio falling to -29.28%. This signifies that the company’s returns on invested capital were less than its cost of capital.

The ratio continued to be negative in 2023 and 2024, registering at -29.67% and -28.24% respectively. While remaining negative, the ratio experienced a slight improvement in 2024. The most recent year, 2025, shows a further improvement, with the economic spread ratio reaching -21.98%. This suggests a narrowing gap between the cost of capital and returns generated, but still indicates a shortfall.

The invested capital demonstrates a significant increase from 2021 to 2022, rising from US$6,195 million to US$58,525 million. Following this substantial increase, invested capital remained relatively stable between 2022 and 2024, fluctuating between US$57,883 million and US$58,227 million. A further increase is observed in 2025, reaching US$61,734 million.

Economic Profit

Economic profit was positive in 2021 at US$1,690 million, aligning with the positive economic spread ratio. However, economic profit became substantially negative starting in 2022, reaching -US$17,137 million. This negative trend persisted through 2025, although the magnitude of the loss decreased over time, reaching -US$13,568 million in the most recent year.

The concurrent movement of the economic spread ratio and economic profit suggests a strong correlation between the two metrics. The increasing invested capital, coupled with consistently negative economic profit, contributed to the negative and declining economic spread ratio observed throughout the period.

The economic profit margin demonstrates a significant and consistent decline over the observed five-year period. Initially positive, the metric transitioned to substantial negative values, although the magnitude of the losses appears to be moderating in the most recent year presented.

Economic Profit Margin Trend

In 2021, the economic profit margin stood at 10.28%. This represents a period where economic profit substantially exceeded the cost of capital. However, a dramatic shift occurred in 2022, with the margin plummeting to -72.61%. This decline continued in 2023, reaching -75.73%, indicating a worsening of economic performance relative to capital employed. A partial recovery is evident in 2024, with the margin improving to -63.78%, and further improvement is observed in 2025, reaching -39.17%. While still negative, the 2025 margin suggests a lessening of the economic loss compared to the prior three years.

The movement in economic profit margin closely mirrors the trend in economic profit itself. The initial positive economic profit of US$1,690 million in 2021 was followed by substantial economic losses in subsequent years, peaking at negative US$17,176 million in 2023. The economic profit margin’s improvement in 2024 and 2025 coincides with a reduction in the magnitude of the economic loss, although it remains negative.

Revenue Relationship

Net revenue increased from US$16,434 million in 2021 to US$34,639 million in 2025, representing a significant overall growth. However, this revenue growth has not translated into economic profit. The consistent negative economic profit margin suggests that, despite increasing sales, the cost of capital employed to generate those sales has consistently exceeded the profit generated, indicating potential inefficiencies in capital allocation or operational performance.

The observed trend suggests a growing disconnect between revenue generation and value creation. While the company has successfully increased its top line, it has struggled to generate returns that exceed its cost of capital. The recent moderation in the negative economic profit margin offers a potential signal of improvement, but continued monitoring is necessary to determine if this trend will persist and ultimately lead to positive economic profit.