Advanced Micro Devices Inc. (NASDAQ:AMD)

The income tax expense (benefit) exhibited significant fluctuations over the five-year period. Current tax expense increased substantially in 2022 before decreasing in subsequent years, ultimately resulting in a benefit in 2025. Deferred tax expense followed an inverse pattern, moving from a substantial expense in 2022 to a benefit in 2025. The overall income tax provision (benefit) demonstrates considerable volatility, swinging from a positive provision to a significant benefit and back again.

Current Tax Expense

Current tax expense rose from $205 million in 2021 to $1,383 million in 2022, representing a substantial increase. This was followed by a decrease to $673 million in 2023 and a further increase to $1,544 million in 2024. In 2025, a current tax benefit of -$355 million was recorded, indicating a reversal of tax obligations.

Deferred Tax Expense

Deferred tax expense was $308 million in 2021. It then became a significant expense of -$1,505 million in 2022, followed by expenses of -$1,019 million in 2023 and -$1,163 million in 2024. By 2025, deferred taxes shifted to a benefit of $252 million.

Total Income Tax Provision (Benefit)

The combined effect of current and deferred taxes resulted in a provision of $513 million in 2021. This shifted to a benefit of -$122 million in 2022, a larger benefit of -$346 million in 2023, a provision of $381 million in 2024, and finally a benefit of -$103 million in 2025. The volatility suggests significant changes in taxable income, tax credits, or changes in deferred tax asset/liability valuations.

The large swings in both current and deferred tax components suggest the company’s tax situation is sensitive to various factors. The shift from provisions to benefits, and vice versa, warrants further investigation into the underlying causes, such as changes in profitability, jurisdictional mix of earnings, utilization of tax loss carryforwards, or adjustments to valuation allowances on deferred tax assets.

The effective income tax rate exhibits significant fluctuations over the observed period. While the statutory federal income tax rate remained constant at 21.00%, the effective income tax rate demonstrates considerable variance, indicating factors beyond the standard corporate tax rate are influencing the company’s tax burden.

Effective Income Tax Rate Trend

In 2021, the effective income tax rate was 14.00%, below the statutory rate. This suggests the presence of tax benefits or deductions reducing the overall tax liability. A substantial shift occurred in 2022, with the effective income tax rate becoming negative at -10.00%. This negative rate implies a net tax benefit, potentially stemming from tax credits, the realization of deferred tax assets, or other unusual items. The negative trend continued and intensified in 2023, reaching -68.00%, indicating a significantly larger tax benefit relative to pre-tax income. A positive reversal is observed in 2024, with the effective income tax rate rising to 18.84%, though remaining below the statutory rate. Finally, in 2025, the effective income tax rate decreased to -2.50%, again indicating a net tax benefit, albeit less pronounced than in 2023.

The considerable volatility in the effective income tax rate warrants further investigation. The negative rates in 2022, 2023, and 2025 suggest the company is benefiting from items that reduce its tax obligations, potentially including research and development credits, net operating loss carryforwards, or changes in valuation allowances. The return towards a positive, but still below-statutory, rate in 2024 could indicate a reduction in these benefits or a change in the company’s earnings mix. Understanding the specific drivers behind these fluctuations is crucial for assessing the sustainability of the company’s tax position and forecasting future tax expenses.

Discrepancy between Statutory and Effective Rates

The consistent difference between the statutory and effective income tax rates throughout the period highlights the importance of considering factors beyond the standard corporate tax rate when analyzing the company’s financial performance. The magnitude of this difference varies significantly, suggesting that the impact of these factors is not constant and requires detailed scrutiny.

The composition of deferred tax assets and liabilities exhibits significant fluctuations over the five-year period. Deferred tax assets increased substantially from 2021 to 2024, then decreased in 2025, while deferred tax liabilities remained consistently negative and relatively stable in magnitude, with a slight decrease over the period. A key driver of the deferred tax asset growth was capitalized R&D, which increased significantly before decreasing slightly in the final year. The net deferred tax position shifted from a net asset in the earlier years to a net liability in 2022 and 2023, before returning to a net asset in 2024 and 2025.

Capitalized R&D

Capitalized R&D represents a growing portion of deferred tax assets, increasing from US$943 million in 2022 to US$2,892 million in 2024. A slight decrease to US$2,556 million is observed in 2025. This suggests an increasing investment in research and development activities, and the associated tax benefits are being recognized as deferred tax assets.

Net Operating Loss Carryovers

Net operating loss carryovers decreased steadily from US$1,031 million in 2022 to US$61 million in 2025. This indicates a reduction in the ability to offset future taxable income with past losses, potentially due to improved profitability or the expiration of carryforward periods.

Accruals and Reserves

Accruals and reserves not currently deductible fluctuated, peaking at US$835 million in 2022, decreasing to US$574 million in 2023, then increasing again to US$829 million in 2024 and US$727 million in 2025. This suggests changes in the timing of expense recognition relative to taxable income.

Tax Credit Carryovers

Both federal/state tax credit carryovers and foreign R&D/investment tax credits demonstrate a consistent upward trend throughout the period, increasing from US$631 million and US$578 million respectively in 2022 to US$709 million and US$631 million in 2025. This indicates an increasing utilization of tax credit programs.

Valuation Allowance

The valuation allowance against deferred tax assets remained substantial and relatively stable, decreasing slightly from US$2,078 million in 2022 to US$1,338 million in 2025. This suggests continued uncertainty regarding the realization of a portion of the deferred tax assets.

Deferred Tax Liabilities

Deferred tax liabilities are primarily driven by acquired intangibles, which consistently represent a significant negative component, decreasing from US$3,430 million in 2022 to US$3,227 million in 2025. GILTI also contributes to deferred tax liabilities, decreasing from US$633 million in 2022 to US$348 million in 2025. Right-of-use assets and other items also contribute, with a general trend towards decreasing liabilities.

Net Deferred Tax Position

The net deferred tax position experienced a notable shift. After being a net asset of US$919 million in 2021, it became a net liability of US$1,876 million in 2022, remaining a net liability of US$836 million in 2023. It then transitioned back to a net asset of US$339 million in 2024 and US$71 million in 2025. This volatility suggests significant changes in the balance between deferred tax assets and liabilities, influenced by factors such as profitability, R&D spending, and acquisitions.

A significant fluctuation in deferred tax assets and liabilities is observed over the five-year period. Deferred tax assets decreased substantially from 2021 to 2022, then experienced volatility with increases in 2023 and 2024, followed by a decrease in 2025. Deferred tax liabilities exhibited an opposite pattern, increasing dramatically from 2021 to 2022, then decreasing over the subsequent three years.

Deferred Tax Assets

The value of deferred tax assets began at 931 US$ millions in 2021, declining sharply to 58 US$ millions in 2022. A considerable increase followed, reaching 366 US$ millions in 2023, and further growing to 688 US$ millions in 2024. However, the value decreased again in 2025, settling at 384 US$ millions. This suggests potential changes in the realizability of temporary differences giving rise to these assets, or alterations in tax planning strategies.

Deferred Tax Liabilities

Deferred tax liabilities showed a marked increase from 12 US$ millions in 2021 to 1,934 US$ millions in 2022. This was followed by a decline to 1,202 US$ millions in 2023, continuing to 349 US$ millions in 2024, and finally reaching 313 US$ millions in 2025. The substantial increase in 2022 and subsequent decreases indicate potential shifts in taxable temporary differences or changes in applicable tax rates.

The contrasting trends in deferred tax assets and liabilities suggest a dynamic tax position. The large movements in both categories warrant further investigation into the underlying causes, such as changes in accounting methods, tax laws, or the nature of temporary differences. The net deferred tax position (liabilities less assets) has changed significantly over the period, potentially impacting future cash flows related to income taxes.

The financial information reveals significant adjustments related to deferred tax assets and liabilities over the five-year period. These adjustments impact reported values for total assets, total liabilities, stockholders’ equity, and net income. A consistent pattern emerges where reported figures are altered by removing deferred tax components, resulting in adjusted values.

Total Assets

Reported total assets increased substantially from 2021 to 2022, then exhibited modest growth through 2024, followed by a more significant increase in 2025. The adjusted total assets follow a similar trend, though the magnitude of the increase from 2021 to 2022 is slightly less pronounced. The difference between reported and adjusted total assets remains relatively stable, fluctuating between approximately US$931 million and US$374 million annually.

Total Liabilities

Reported total liabilities increased considerably from 2021 to 2022, then decreased in 2023 and 2024 before increasing again in 2025. The adjusted total liabilities demonstrate a similar pattern, but with lower values overall. The reduction in adjusted liabilities is more pronounced than in reported liabilities, suggesting a larger deferred tax liability component in the reported figures. The difference between reported and adjusted total liabilities varies, peaking at US$1,934 million in 2022 and reaching US$313 million in 2025.

Stockholders’ Equity

Reported stockholders’ equity mirrored the trend in total assets, with a large increase from 2021 to 2022 and subsequent moderate growth. Adjusted stockholders’ equity also increased, but to a lesser extent. The difference between reported and adjusted stockholders’ equity is consistently around US$919 million in the earlier years, increasing to approximately US$381 million in 2025. This indicates a consistent, but decreasing, deferred tax impact on reported equity.

Net Income

Reported net income decreased significantly from 2021 to 2022 and again in 2023, before recovering in 2024 and increasing substantially in 2025. The adjusted net income presents a stark contrast. While the reported net income for 2022 and 2023 shows losses, the adjusted net income reveals a larger loss for those years. The difference between reported and adjusted net income is substantial, particularly in 2022 and 2023, suggesting a significant impact from deferred tax benefits or expenses. The adjusted net income aligns more closely with the reported net income in 2024 and 2025, though a slight positive adjustment remains.

The consistent adjustments to net income suggest the presence of substantial deferred tax assets or liabilities that are being recognized or reversed over time. The removal of these deferred tax items results in a more volatile adjusted net income profile compared to the reported net income. The adjustments to the balance sheet items (assets, liabilities, and equity) are relatively consistent in magnitude, indicating a systematic approach to removing deferred tax components from the reported financial position.

The financial performance, as indicated by several key ratios, exhibits notable differences when deferred tax effects are removed from the calculations. Generally, the adjusted ratios reveal a more volatile, and in some periods, a less favorable picture than the reported figures. A consistent pattern emerges where the adjustments tend to lower profitability metrics in 2022 and 2023, before showing improvement in later years.

Profitability

Reported net profit margin demonstrates fluctuation, increasing from 5.59% in 2022 to 12.51% in 2025. However, the adjusted net profit margin shows a more dramatic swing, moving from -0.78% in 2022 to 13.24% in 2025. The negative adjusted margins in 2022 and 2023 suggest that deferred tax assets are significantly contributing to reported profitability during those periods. The difference between reported and adjusted ROE and ROA follows a similar pattern, with adjustments decreasing these metrics in 2022 and 2023, and then increasing them in 2024 and 2025. This indicates a substantial impact of deferred taxes on the overall return generated from equity and assets.

Asset Utilization

Reported total asset turnover remains relatively low and stable, ranging from 0.33 to 0.45 over the period. The adjusted total asset turnover shows a slight increase over the same period, but the difference between the reported and adjusted values is minimal. This suggests that deferred taxes have a limited impact on the efficiency with which assets are used to generate revenue.

Financial Leverage

Reported financial leverage exhibits a decreasing trend from 1.66 in 2021 to 1.22 in 2025, indicating a reduction in the proportion of assets financed by debt. The adjusted financial leverage mirrors this trend, though it consistently reports slightly higher values than the reported leverage. The difference between the reported and adjusted values is relatively small, suggesting that deferred taxes have a modest impact on the company’s capital structure as measured by this ratio.

In summary, the removal of deferred tax effects significantly alters the interpretation of profitability ratios, particularly in the earlier years of the observed period. While asset utilization and financial leverage are less affected by these adjustments, the substantial impact on net profit margin, ROE, and ROA highlights the importance of considering deferred taxes when assessing the company’s underlying financial performance.

The period under review demonstrates significant fluctuations in both reported and adjusted net income, consequently impacting associated profit margins. A notable divergence exists between the reported and adjusted net profit margins, particularly in 2022 and 2023, suggesting the impact of specific adjustments to net income.

Reported Net Profit Margin

The reported net profit margin exhibited a substantial decline from 19.24% in 2021 to 5.59% in 2022. A further decrease was observed in 2023, reaching 3.77%. A recovery began in 2024, with the margin increasing to 6.36%, and continued into 2025, reaching 12.51%. This indicates a volatile performance in reported profitability, with a strong rebound in the most recent year.

Adjusted Net Profit Margin

The adjusted net profit margin followed a markedly different trajectory. While starting at a relatively high 21.11% in 2021, it experienced a significant downturn, resulting in negative margins of -0.78% in 2022 and -0.73% in 2023. A positive, though modest, margin of 1.85% was achieved in 2024, followed by a substantial increase to 13.24% in 2025. The negative values in 2022 and 2023 highlight the impact of adjustments that reduced net income below zero on a margin basis.

Relationship Between Reported and Adjusted Margins

The difference between the reported and adjusted net profit margins was most pronounced in 2022 and 2023. This suggests that the adjustments made to net income in those years were substantial and negatively impacted profitability. The convergence of the two margins in 2025, while still differing, indicates a lessening of the impact of these adjustments as adjusted net income improved significantly.

Overall, the financial performance, as reflected in these margins, demonstrates a period of instability followed by a strong recovery. The adjustments to net income appear to have played a critical role in shaping the observed trends, particularly during the years 2022 and 2023. The substantial increase in both reported and adjusted net profit margins in 2025 suggests a positive shift in underlying business performance or a change in the nature of the adjustments being made.

The reported and adjusted total asset turnover ratios exhibit similar trends over the observed period. Initially, a substantial decrease in both ratios is noted between 2021 and 2022, followed by relative stability with slight fluctuations through 2024, and then an increase in 2025.

Reported Total Asset Turnover

The reported total asset turnover ratio decreased significantly from 1.32 in 2021 to 0.35 in 2022. This indicates a considerably less efficient utilization of assets in generating sales in 2022 compared to 2021. The ratio remained relatively stable between 2022 and 2024, fluctuating between 0.33 and 0.37. A subsequent increase to 0.45 is observed in 2025, suggesting a modest improvement in asset utilization.

Adjusted Total Asset Turnover

The adjusted total asset turnover ratio mirrors the trend of the reported ratio, declining from 1.43 in 2021 to 0.35 in 2022. Similar to the reported ratio, it demonstrates stability between 2022 and 2024, ranging from 0.34 to 0.38. An increase to 0.45 is also observed in 2025, aligning with the trend in the reported ratio.

Asset Base Comparison

Reported total assets increased substantially from 2021 to 2022, rising from US$12,419 million to US$67,580 million, and continued to grow, albeit at a slower pace, reaching US$76,926 million in 2025. Adjusted total assets followed a similar pattern, with a large increase between 2021 and 2022 and continued growth through 2025. The difference between reported and adjusted total assets remains relatively consistent across the period, suggesting a consistent approach to asset adjustments.

Ratio Convergence

The adjusted and reported total asset turnover ratios remain very close in value throughout the entire period. This suggests that the adjustments made to total assets do not materially impact the overall assessment of asset utilization efficiency.

The significant decline in asset turnover between 2021 and 2022 warrants further investigation to understand the underlying causes, such as changes in sales volume, asset composition, or industry dynamics. The improvement observed in 2025, while modest, suggests a potential positive trend in asset utilization.

The financial leverage metrics demonstrate a generally stable pattern over the five-year period. Both reported and adjusted total assets experienced a substantial increase between 2021 and 2022, followed by more moderate growth in subsequent years. Stockholders’ equity also exhibited significant growth from 2021 to 2022, with a slower, steadier increase thereafter. The adjusted financial leverage ratio consistently trends slightly higher than the reported financial leverage ratio throughout the period.

Reported Financial Leverage

Reported financial leverage decreased from 1.66 in 2021 to 1.23 in 2022, indicating a reduced proportion of assets financed by equity. From 2022 through 2024, this ratio remained relatively stable, fluctuating between 1.20 and 1.23. A slight increase to 1.22 is observed in 2025.

Adjusted Financial Leverage

Adjusted financial leverage followed a similar trajectory to the reported ratio, decreasing from 1.75 in 2021 to 1.19 in 2022. It then remained consistent at 1.19 for 2022 and 2023, increasing to 1.20 in 2024 and 1.22 in 2025. The adjusted leverage consistently indicates a slightly higher level of financial risk compared to the reported leverage.

Asset and Equity Trends

The substantial increase in both adjusted and reported total assets between 2021 and 2022 suggests significant business expansion or acquisitions. The growth in stockholders’ equity, while substantial, was less pronounced than the asset growth, contributing to the initial decrease in both reported and adjusted financial leverage ratios. The subsequent, more moderate growth in assets and equity resulted in stabilization of the leverage ratios.

Discrepancy between Reported and Adjusted Leverage

The consistent difference between reported and adjusted financial leverage suggests that the adjustments made to total assets and stockholders’ equity have a material impact on the calculated leverage. The nature of these adjustments is not apparent from the information presented, but they consistently result in a higher leverage ratio when applied.

Overall, the company demonstrates a relatively stable financial leverage position following a period of significant growth. The adjusted leverage ratio provides a potentially more conservative view of the company’s financial risk profile.

The period under review demonstrates significant fluctuations in both reported and adjusted net income, impacting return on equity calculations. Reported net income decreased substantially from 2021 to 2022, before experiencing further decline in 2023, a modest recovery in 2024, and a substantial increase in 2025. Adjusted net income exhibits even more volatility, including negative values in 2022 and 2023, followed by a recovery and then a rise in 2025 that exceeds the reported net income for the same period.

Stockholders’ equity, both reported and adjusted, generally increased throughout the period. Reported stockholders’ equity shows a large increase between 2021 and 2022, with more moderate growth in subsequent years. Adjusted stockholders’ equity mirrors this trend, with a similar large increase initially and then slower growth. The difference between reported and adjusted equity remains relatively consistent across the years.

Reported Return on Equity (ROE)

Reported ROE follows the trend of reported net income, declining sharply from 42.18% in 2021 to 2.41% in 2022, and reaching a low of 1.53% in 2023. A slight improvement is seen in 2024, reaching 2.85%, before a more substantial increase to 6.88% in 2025. This indicates a strong correlation between net income and ROE as expected.

Adjusted Return on Equity (ROE)

Adjusted ROE demonstrates greater volatility than its reported counterpart. It declines from 52.75% in 2021 to a negative 0.33% in 2022, and further to -0.29% in 2023, reflecting the negative adjusted net income during those years. The ratio becomes positive in 2024 at 0.84%, and then increases significantly to 7.29% in 2025, exceeding the reported ROE for that year. The divergence between reported and adjusted ROE is most pronounced in 2022 and 2023, suggesting the adjustments made to net income have a substantial impact on profitability assessment during those periods.

The substantial differences between reported and adjusted ROE highlight the importance of understanding the nature of the adjustments made to net income. The negative adjusted ROE in 2022 and 2023 suggests that these adjustments relate to items that significantly reduce earnings. The recovery and subsequent outperformance of adjusted ROE in 2025 indicate that these adjustments may be non-recurring or have diminished in impact.

The period under review demonstrates significant fluctuations in reported and adjusted net income, impacting return on assets calculations. Reported net income decreased substantially from 2021 to 2022, before experiencing further decline in 2023, a modest recovery in 2024, and a substantial increase in 2025. Adjusted net income exhibits even more volatility, including negative values in 2022 and 2023, followed by a recovery and eventual surpassing of reported net income by 2025.

Reported Return on Assets (ROA)

Reported ROA mirrors the trend in reported net income. A high of 25.46% in 2021 declined to 1.95% in 2022 and further to 1.26% in 2023. A slight improvement to 2.37% was observed in 2024, culminating in a substantial increase to 5.64% in 2025. This suggests a strong correlation between profitability, as measured by reported net income, and the efficiency with which assets are utilized to generate earnings.

Adjusted Return on Assets (ROA)

Adjusted ROA displays a more dramatic pattern. Starting at 30.21% in 2021, it experienced negative values in both 2022 (-0.27%) and 2023 (-0.24%), indicating losses when considering adjustments to net income. The ratio recovered to 0.70% in 2024 and continued to rise significantly to 5.99% in 2025. The divergence between reported and adjusted ROA suggests that the adjustments made to net income have a considerable impact on the assessment of asset utilization efficiency.

Total assets, both reported and adjusted, increased considerably from 2021 to 2025. Reported total assets grew from US$12,419 million to US$76,926 million, while adjusted total assets increased from US$11,488 million to US$76,542 million. The relatively small difference between reported and adjusted total assets throughout the period indicates that asset adjustments are not a primary driver of the observed changes in ROA. The increases in total assets, coupled with the fluctuating net income figures, contribute to the observed volatility in both reported and adjusted ROA.

The substantial increase in both reported and adjusted ROA in 2025 warrants further investigation to determine the sustainability of this improvement. The negative adjusted ROA values in 2022 and 2023 highlight the importance of understanding the nature of the adjustments made to net income and their impact on the overall financial performance assessment.