What happened
Shares of Advanced Micro Devices (AMD -5.78%) were up 5.6% today as of 2:45 p.m. ET. Investors can thank the company for yet another quarter of incredible performance. AMD posted 49% year-over-year revenue growth in Q4 2021 and 68% growth for the full-year period. With management expecting $21.5 billion in sales in 2022, AMD is now one of the largest chip designers out there.
So what
A decade ago, AMD's future looked tenuous at best. Fraught with financial trouble during the Great Recession of 2008-2009, it had parted ways with its chip manufacturing division (the company we now know as Globalfoundries) so it could double down on semiconductor development -- a monumental task given Intel's dominance in this department.
Image source: Getty Images.
But the AMD of today is no underdog. It's now eating Intel's lunch as it makes headway in personal computing and data centers (the computing units that enable the cloud). Shares are now up an incredible 1,670% over the last 10-year stretch, and given it expects sales to grow another 31% and for profit margins to expand in 2022, this incredible run looks far from over.
AMD stock trades for 44 times trailing-12-month earnings per share and 46 times trailing-12-month free cash flow as of this writing.
Now what
AMD trades for a premium price tag, and given that the semiconductor industry is a historically cyclical one (periods of booming sales are often followed by a sales drought, rinse, and repeat), many investors shy away from stocks like AMD. That's fair. Even though we're in the midst of a chip shortage, eventually supply and demand will balance out. When that happens (maybe 2023, maybe later, no one really knows), moderating sales growth could cause AMD some serious turbulence.
However, the best chip stocks to own for the long haul are those that can post both higher highs as well as higher lows as the industry overall goes through its ups and downs. The new AMD focused on chip research and development is beginning to exhibit that quality you want to look for in a long-term semiconductor investment after its business model overhaul.
Data by YCharts.
Plus, AMD is getting ready to disrupt Intel on a brand new front with its acquisition of Xilinx, which just got approval from regulators and should be complete by the end of March 2022. By the way, AMD's growth outlook for the new year doesn't include Xilinx, a business also growing by a double-digit percentage. Adding Xilinx into the mix will launch AMD's foray into new markets like industrial equipment, networking infrastructure, and automotive technology.
If you are looking for a solid bet on the continued advance of computing technology for the next decade, AMD still looks like a great buy today.
