Advanced Micro Devices (AMD 0.06%) showed that its growth story continues as it released its fourth-quarter and 2021 earnings. Amid outsized revenue and earnings increases, investors reacted by bidding AMD stock higher by 5% in the following session.
That gain serves as the latest growth spurt in a trend that has taken AMD stock higher by nearly 3,600% since Lisa Su became CEO in October 2014. Now, following that considerable growth, prospective stockholders may wonder whether it is too late to benefit from the AMD growth story.
AMD's latest advancements
Indeed, the company's latest report speaks to the strength of AMD's product lines. The most recent quarter brought rising sales of its Radeon and Ryzen processors bolstered by record sales of notebooks, strong demand for premium notebooks, and high-end desktop CPUs.
Shipments of these high-end computers, which it powers with Ryzen 5000 processors, grew by double-digit percentages. Additionally, at the Consumer Electronics Show (CES) in January, it announced the release of its Ryzen 6000 series notebook CPUs and demonstrated the Ryzen 7000 desktop CPUs it expects to release in the second half of the year.
Furthermore, its pending acquisition of Xilinx (XLNX) will make it the "leading high-performance computing company," according to AMD. Su stated on AMD's Q4 2021 earnings call that EPYC processors already power eight of the 10 top supercomputers globally in terms of efficiency. Hence, the deal looks like a natural extension of its existing strengths and should expand its product offerings and customer base.
Also, a study by researchers at the University of Edinburgh found Xilinx's FPGA chip outperformed Intel's on some measures, indicating the Xilinx deal should enhance AMD's competitive edge. This is especially true for the company's data center segment, which doubled revenue over the last 12 months.
Earnings and stock price growth
Such advancements also continue to accrue to the company's overall financials. AMD generated revenue of $16.4 billion in 2021, a 68% increase year over year. In addition, non-generally accepted accounting principles (non-GAAP) earnings of $3.4 billion surged 118% versus 2020 levels. The increase in gross margins from 45% to 48% during that period, as well as slower growth in operating expenses, boosted net income growth.
Further, AMD appears on track to continue its robust gains, though the revenue growth rate seems poised to slow. Its outlook for fiscal 2022 calls for revenue of around $21.5 billion, which would amount to a 31% gain. Despite that lower revenue outlook and the tech sell-off late last year, AMD stock managed a gain of 41% over the previous 12 months.
But even after that gain, AMD continues to maintain an attractive valuation considering its growth. It sells for a price-to-earnings (P/E) ratio of 48. While that is higher than one of its key manufacturers, Taiwan Semiconductor, it remains well below Nvidia's 76 P/E ratio.
Investors must also remember that the semiconductor industry remains a cyclical business. Both the pandemic and rapid growth in areas such as artificial intelligence, virtual reality, Internet of Things, and 5G have further boosted demand for chips. As chipmakers have raised production, supplies appear to be achieving a better balance with demand. This could affect chip pricing in the near term as this needed component becomes more available.
Is it too late to consider AMD?
Although AMD has increased considerably over the last few years, its growth story will likely continue. Admittedly, the company could lose some pricing power as manufacturers address chip shortages by increasing production.
However, in addition to its massive growth, it continues to improve its offerings with the release of upgraded processors. Moreover, adding Xilinx should further advance the company's supercomputing capabilities. With a P/E ratio well under that of Nvidia, this chip stock should hold investors in good stead as its growth story continues.