 Good day, fellow investors. After the great video we made on Micron, I'm back here with Yao Kai Yang. And this time, we will talk about a company that was extremely requested during the last year, and that is AMD. If you look at the chart over the long term about AMD, you can see that it was exploding over the last two, three years. And that's why, irrationally, everybody was asking about AMD, me to analyze AMD over the last year. Now the stock is down from its peak, but Yao Kai will explain how and when to invest in AMD. So AMD, semiconductor company, you probably know what it does. I'll just give you quickly the fundamentals, price earnings 57, forward 30, price to book high 16. If I look at the financials, revenues didn't go anywhere in the last 10 years. Gross margin is very volatile. Around, I don't know, from 20 to 40. Earnings per share on a cumulative basis are actually negative. Shares have almost doubled over the last 10 years, and the free cash flow is also cumulatively negative. And the book value also not a great thing to look at it. But one way is to look at fundamentals, but you always have to look at the product, and Yao Kai will talk more about that later. Let me just show you again, Intel, much stabler stock price, much more stability into the company, price earnings ratio of 10, 15, going to 10, price to book of free, a small dividend yield, doubling revenues, gross margin high at around 60%, paying dividends, shares, number of shares going down, free cash flow, going up constantly and now at 14 billion, which is pretty, pretty high. Let me give the words to Yao Kai, who will talk about AMD and what should you focus on if you must be invested in AMD? As so many of you asked about AMD, when to invest, when to get out, what to watch in the cycle, what to watch in the product. So the word goes to you, Yao Kai. Oh, hi. So the thing about AMD is that you have to focus on the product and the way you focus on the products to understand two things. One is the performance attractive. So when the performance attractive, people will pay a high premium. When they're not, you get very low margins. And from 2006 all the way to 2017, AMD did not, on the CPU side, did not have anything that's attractive, nothing. And that's why we have seen the very, very bad performance in the stock price for some years. So a decade of pain for AMD. That's a decade of pain. And then the second thing you have to pay attention is the change in product, either for themselves or from Intel. So if Intel introduces something that is about say, 50% better in terms of role performance or efficiency, that is the time you should be selling AMD because it's gonna take them a really, really long time to develop the next thing that will be able to out-compete or just compete against Intel's offerings. But let me ask you a question. If we have AMD that has revenues of six billion and we have Intel that has free cash flow of 14 billion, how can AMD compete at all with Intel? This is the biggest advantage for Intel, obviously, because of the scale and then the high fixed cost business that they're in, the dev cost is very high. The saving grace for AMD now is one they no longer have to invest in semiconductor fabrication. So that capex is cut down dramatically. So you don't produce, you only design. Design is still very expensive. So you have to wait for some change of current. So one change of current that has happened in since 2004-ish is Intel got stuck on their 14 nanometer process nodes. So they've been delaying that for four years now, three, four years. So in 2015, they came up saying, oh, whoops, we meant to introduce the next generation technology, but we couldn't. So they kept on getting stuck and they're still stuck on 14. And here is when the vertical integration of Intel kind of bites them, bites back at them, because they don't want to use anyone else's fabrication process because they have their own factory, right? But the industry as a whole has, the other fabs has moved ahead. So AMD now can produce at seven nanometers because they're using someone else's fabrication. So now you are essentially using a different, a weapon of a higher grade compared to Intel because Intel is using the older technology to manufacture even though they have a lot of R&D, they can design their chips, but with a particular process node, you are limited in terms of your transistor budget, your power budget and all that. So it's only so much you can do. So this is a change of current that has propelled AMD. And also AMD's return has been always crap. They've been burning capital, if you think about it. Intel is returning capital, so they're spending a very small percentage of their money in R&D, AMD's burning capital, just trying to keep up, right? So it's not, if I'm a shareholder perspective, yeah, they can't win, long-term, they can't win. It's simple as that. You just cannot win the state war, but- Okay, so why did the stock go from in 2016 to 40 last year and now it's down again? What happened there? I don't know about the down thing, but the up, I caught the up one. I bought in 2016, March, and the reason is in 2015, AMD released a statement saying that their Zen micro-architecture is going to be, everything's on track, everything's meeting expectations. And if you look back in 2014 or 12-ish, they were saying that the purpose of this new thing is to increase performance 40% compared to their existing offerings. And then you compare the performance of their existing offerings back then to what Intel had, and you can see, oh, they were in a super bad situation, now they're competitive again. So the change is from complete lack of competitiveness. They were so bad, their top of the line CPU will perform worse than a i3, which is the lowest of the line for the core family in a game, right? That's how bad they are. At the same time, consuming about five times the power. So you have something that heats very well but doesn't perform very well. Nobody likes that, and you can't put that in laptops, you can't put that in servers, you can't put that in anywhere other than a desktop where someone is really cheap and don't care about power. Maybe you're in Russia. So that's what they were doing, and with that 40% bump, suddenly it will become competitive. And that is when I noticed that in 16, so that's when I bought, I didn't constantly check it, it wasn't a good investment idea. I just thought, oh, here is a change of a big change, almost like a shift that is really big in the industry. Now they are going to capture market share, they're going to increase margin and they will have free cash flow probably. So that is what I bought, it's a turnaround, it's not a long-term investment. Okay, so yeah. Also probably other people jumped in as the story developed, as they started improving numbers, as they started to be graded up, outperforming by and things like that. Typical Wall Street story, when there is a turnaround, and now what is happening now? I've sold, I sold too early at 16, but it then went to 31. I don't know what the hell that 31 was, but I sold because the story has mostly played out. You've already seen a pretty good adoption of their new CPUs, both in the consumer end, the prosumer end, and even the server side, which takes quite a while. That's actually a big thing. So it takes one to two years for the server manufacturers to even vet these CPUs and there's uptake. Baidu is buying them 10 cents, even here in U.S. or a bunch of cloud operators buying these CPUs. So the story is, everybody sees the story now. Everybody knows what to look for. So I don't see there's much upside left. And then I did a very, very rough, albeit conservative profit projection, they'll probably be making just like $1 billion or so on the low end in terms of profit. If they capture 20% of the server market, which is their peak back in 2006, and then they will probably get like 20, 30% of the consumer side, on a good day, and then you project a little bit of margins and all that stuff, probably $1 billion. Okay, so I thought $20 billion is probably fairly valued now. So I am gone. But for how long will that last? This trading blow thing, currently it's not a domination, right? AMD is not dominating over Intel. It's mostly trading blows. People would like to think otherwise, people love AMD for some reason, but that just means they'll probably go on for indeterminate years, because these things can drag out for long periods of time. Intel will command higher margins. They don't want to lower their prices and make most of the money, AMD will make less money, but they will survive just fine. It's not a good time to be investing. And the other thing I want to mention is what's the good time to get out of AMD? And that's especially true for AMD is when Intel comes up with something that's 50% better than what they have, then you can't expect any response from AMD at least five years, and history tells us about 10 years. So whenever Intel comes up with something that's super shiny, sell AMD, because the time lag involved in developing the next generation of CPU is gonna kill you. In the meantime, AMD will issue more shares, dilute, lose money, yeah. And how do we know when Intel is coming out with something shiny? You don't even need to know when it's coming out. You just need to sell when it did come out and somebody keep track with these review sites and if the review sites are uniformly enthusiastic about the new Intel CPU, get out. It's good enough. What are the review sites? Tom, hardware, and then tech. If you want video, you can do Linus tech news, Gamer Nexus, stuff like that. Anything that's targeted not to Wall Street, not to investors, but to the users keep track of these. And they know what the users are looking for because different users look for different things in a CPU. And a very simple example, on a laptop you care about battery life, you care about power consumption a lot more than you are on a desktop. And on a gaming CPU, you care a lot more about, this is a bit technical floating point and single thread performance compared to say someone that's doing web development. So that's very different uses. So to conclude, where are we now in the industry in the, is Intel coming up with something new? Have they come out or not yet? No, they're not coming up with anything new but AMD is not dominating over them either. It won't because Intel still holds the best single thread performance which is needed for gaming. They still have certain advantages when it comes to AVEX which is a particular instruction set extension. And the optimization is still better in terms of software for Intel because there's just a lot more of them. AMD is holding on its own though. It is good for, for example, video editing. It's very good for cheap gamers, streamers. And it's also good for server type of loads. Like when if you have a web service or something it's very good for that. But nobody is dominating over the other. So I wouldn't bet on AMD now. It's not, there's not much upside that I see. Okay, but so we have seen the 10 year numbers, 20 year numbers, it's not a positive for shareholders. Why the hell would I ever buy this company? You buy it to bet on the next product but you have to bet it on it before everybody realizes it's going to change the competitive landscape. But so you have to buy a shit. For that I might wait for 10 years. Yes. Yes. Okay, so it's once in a decade, the sentiment play. Sentiment with fundamental twist. This year and next year I'm expecting much improved margin for AMD. But if you want a company with a moat, this is not one. Okay, so we can see one, two years, good numbers, even better fundamentals. That's why people are asking, what do you think about AMD? Is it the value stock? It's not the value stock, no. Okay, but if next year they make, I don't know, they make some profits, price earnings will go to 40, then to 20, 15, things like that. And then people will start looking, okay, is it value? So the question is- That's when you should probably shorten it because that's, if you think about it, that's 17 is when they release Ryzen, right? Given another five years, that's 2022, very likely Intel has some new thing that is vastly new and vastly better. That's probably why you should be selling it. Because 2006 when AMD had good numbers, great numbers, Intel had a new product that just came out. And what happened then? All right, all right. So let's say not a stock to leave to your grandchildren. Oh, no, no, no. All right, and just a quick note on Intel then, is that the stock that I can leave to my grandchildren? For the next 10, 15 years, I see this still go being fine. There are some shifts in the industry that may threaten it, but overall, I'm not gonna get into too much depth, but you got the ARM competition, which is a new, not a new thing that you use on your phone. Got that. You've got the move to FPGAs and ASICs for deep learning and all the AI stuff. And you've also got potentially- Alask viewers to please use Google translator to translate from your Chinese. Okay, you can continue. And so there are some threats to Intel, but if you're looking at X86 in terms of the PC CPUs, they will be fine for at least another 10 years. But that depends also on demand for PCs and all things like that. Yeah, but not just PCs though, because if you think about all these cloud computing, you guys all have cloud storage and Google Drive and whatever stuff you have. All the cloud computing you hear is running mostly on X86 CPUs and mostly on Intel. As I mentioned, AMD had 0% until 17. So yeah. Good, good. So to sum up just quickly, AMD, let's say, you really need to have it in your circle of competence to follow it for a long, long time and be patient for, let's say, when you enter. And if you don't want to risk a lot of pain over the next cycle, five, 10 years, if and when Intel comes in with a new product, then simply avoid it and that's it. Yeah. So 99.9% of the viewers should simply avoid AMD. Right, this is a very difficult stock to invest in and it doesn't pay a lot when you get it right, but very difficult. All right, so I hope our viewers enjoy this. As always, let them ask the questions in the comments and we'll both see them in the next video. Sure, and oh, and I do have a super long video. This is a plug, a super long video on the history between AMD and Intel if you want details, even more details than we have here, you can go there. All right, perfect. I will put the link for your video in the description.