Advanced Micro Devices Inc. (NASDAQ:AMD)

The analysis of the annual financial data reveals several significant trends related to profitability and capital efficiency over the five-year period.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited strong growth from 2020 to 2021, increasing from $1,330 million to $3,517 million. However, from 2022 onwards, there was a sharp reversal, with NOPAT turning negative in 2022 and 2023, registering losses of $138 million and $201 million respectively. The data for 2024 shows a partial recovery to a positive figure of $621 million, though this remains significantly below the peak in 2021.

Cost of Capital

The cost of capital has remained relatively stable throughout the period, fluctuating marginally between 21.27% and 21.58%. This stability suggests a consistent cost environment despite the volatility observed in profitability and invested capital.

Invested Capital

Invested capital remained at a modest level through 2020 and 2021, increasing from $4,364 million to $6,195 million. However, there is a dramatic jump in 2022 to $58,525 million, which then stabilizes slightly with minor decreases and increases over the subsequent years ending at $58,227 million in 2024. This enormous increase represents an intense expansion of capital deployment or possible revaluation.

Economic Profit

Economic profit, which considers the cost of capital, aligns closely with the trends in NOPAT and invested capital. It rose notably from $390 million in 2020 to a high of $2,180 million in 2021. Subsequently, economic profit plummeted to sizeable negative values starting in 2022, dropping to nearly -$12,585 million and staying at similar negative levels through 2024. This indicates that the returns generated by the invested capital did not cover the cost of capital during those years, leading to significant value erosion.

In summary, the period analyzed demonstrates an initial phase of strong profitability followed by a stark decline into losses and value destruction despite a steady cost of capital. The considerable increase in invested capital starting in 2022 did not translate into sufficient operating profit, resulting in persistent negative economic profit. The partial recovery in NOPAT in the last year observed may suggest attempts at performance improvement, though the economic profit remains deeply negative, indicating ongoing challenges in achieving returns above the capital cost.

The financial data reveals fluctuating profitability and operational efficiency over the five-year period under review.

Net Income

Net income experienced growth from 2020 to 2021, increasing from 2,490 million US dollars to 3,162 million US dollars. However, it sharply declined in 2022 to 1,320 million US dollars, and further decreased in 2023 to 854 million US dollars. In 2024, there was a recovery with net income rising to 1,641 million US dollars, though it remained below the peak values seen in 2020 and 2021.

Net Operating Profit After Taxes (NOPAT)

NOPAT displayed a volatile pattern during the same period. It increased significantly from 1,330 million US dollars in 2020 to 3,517 million US dollars in 2021, indicating strong operational performance. However, in 2022 and 2023, NOPAT turned negative, with losses of 138 million US dollars and 201 million US dollars respectively, suggesting operational inefficiencies or extraordinary expenses. In 2024, NOPAT returned to a positive figure of 621 million US dollars, though this value remained substantially lower than the earlier years.

Overall, the data indicates that while the company demonstrated solid profitability growth through 2021, it subsequently faced challenges in maintaining operational profitability, as seen in the negative NOPAT values for two consecutive years. The partial recovery in 2024 suggests improvements but does not yet reflect a full return to previous performance levels. The divergence between net income and NOPAT in the recent years may warrant further examination to understand underlying causes such as non-operating items or tax impacts.

Income Tax Provision (Benefit)

The income tax provision exhibited considerable volatility over the reported periods. It began with a significant tax benefit of -$1,210 million in 2020, indicating a tax gain or credit. This shifted to a tax expense of $513 million in 2021. Subsequently, the tax provision returned to a benefit state in 2022 and 2023, with figures of -$122 million and -$346 million respectively, before moving back to a tax expense of $381 million in 2024. These fluctuations suggest variability in taxable income or changes in tax strategies and regulations, impacting the company’s tax obligations year over year.

Cash Operating Taxes

The cash operating taxes demonstrated an overall upward trend during the period under review. Starting from a relatively low base of $24 million in 2020, the amount escalated to $214 million in 2021. This increase continued sharply to $1,392 million in 2022, followed by a decline to $658 million in 2023. However, in the final period, cash taxes rose again to $1,531 million in 2024, marking the highest value recorded in the series. This pattern indicates increased cash tax payments despite the oscillation in reported tax provisions, which could reflect timing differences between accounting tax expense and actual tax payments or changes in the company’s taxable income and cash flows.

Total reported debt & leases

The total reported debt and leases experienced a moderate increase from 572 million USD in 2020 to 732 million USD in 2021. However, there was a significant surge in 2022, reaching 2956 million USD, more than quadrupling the previous year's amount. Following this peak, the debt slightly increased to 3109 million USD in 2023 before declining to 2321 million USD in 2024. Overall, despite fluctuations, the values remain substantially elevated relative to the initial years, indicating increased financial leverage or obligations.

Stockholders’ equity

Stockholders' equity showed steady growth from 5837 million USD in 2020 to 7497 million USD in 2021. A substantial rise occurred in 2022, jumping dramatically to 54750 million USD, with continued growth in subsequent years reaching 55892 million USD in 2023 and 57568 million USD in 2024. This marked increase in equity suggests either significant retained earnings, capital infusions, or revaluation adjustments with an emphasis on strengthening the company's financial foundation over time.

Invested capital

Invested capital followed a similar trend to stockholders' equity, beginning at 4364 million USD in 2020 and increasing to 6195 million USD in 2021. A notable surge occurred in 2022, reaching 58525 million USD, which was maintained with a slight decrease to 57883 million USD in 2023 and a minor uptick to 58227 million USD in 2024. The fluctuations suggest strategic capital allocation or acquisitions that contributed to a substantial increase in the total capital invested in the business.

The financial data reveals significant fluctuations in the economic profit over the reported periods. Initially, there is a positive economic profit of US$390 million in 2020, which markedly increases to US$2,180 million in 2021. However, this upward trend reverses in the following years, with economic profit falling drastically into negative figures, registering -US$12,585 million in 2022, and remaining in a similar negative range through 2023 and 2024.

Invested capital demonstrates a steady increase over the periods, starting from approximately US$4,364 million in 2020, rising to about US$6,195 million in 2021, and then escalating sharply to around US$58,525 million in 2022. It remains relatively stable at close to this level in 2023 and 2024, indicating substantial capital investments or asset accumulation during these years.

The economic spread ratio aligns closely with the trends observed in economic profit. It shows a positive ratio in 2020 of roughly 8.94%, surging to 35.19% in 2021, reflecting strong returns on invested capital. From 2022 onward, the ratio turns negative, with values around -21.5% to -20.4%, suggesting that returns on capital are below the cost of capital during this period, which aligns with the sustained negative economic profit.

Economic Profit Trend

Initial growth in 2021 followed by a sharp transition to significant losses from 2022 onward, indicating deteriorating profitability.

Invested Capital Trend

Overall sharp increase, particularly in 2022, likely reflecting elevated investment, acquisitions, or asset buildup.

Economic Spread Ratio Trend

Strong positive returns on capital in early years transition to consistent negative spreads, implying value destruction relative to capital costs in recent years.

Conclusion

The company experienced a period of improved profitability early on, but substantial increases in invested capital have not translated into positive economic returns in subsequent years. The persistent negative economic spread highlights potential challenges in achieving adequate returns on new investments.

The financial data demonstrates notable fluctuations in key performance indicators over the analyzed periods.

Net Revenue

There has been a consistent upward trend in net revenue from 2020 to 2024. Net revenue increased significantly from $9,763 million in 2020 to a peak of $25,785 million in 2024. This growth indicates an expanding market presence or increased sales volume over the years, with a substantial jump particularly between 2020 and 2022, followed by continued growth through 2024.

Economic Profit

The economic profit shows a markedly different pattern in comparison to revenue. It was positive in 2020 at $390 million and rose sharply to $2,180 million in 2021. However, from 2022 onwards, economic profit turned negative, reflecting losses of $12,585 million in 2022 and maintaining similar negative levels through 2024. This shift to negative economic profit despite increasing revenue signals rising costs or capital charges overshadowing income generation.

Economic Profit Margin

The economic profit margin, which relates economic profit to net revenue as a percentage, mirrored the trend seen in economic profit. It improved from 4% in 2020 to a peak of 13.26% in 2021, indicating a period of strong profitability relative to revenue. Starting in 2022, the margin suffered a drastic decline into negative territory, dropping to -53.32% and reaching -46.04% by 2024. The persistent negative margins point to significant inefficiencies or cost pressures adversely impacting profitability.

Overall, while revenue growth has been robust across the periods, the company's economic profit and profitability margins have reversed from gains to substantial losses beginning in 2022. This divergence suggests that factors such as increased expenses, investment costs, or other financial burdens have considerably impacted earnings quality and overall economic value creation.