Advanced Micro Devices Inc. (NASDAQ:AMD)

The financial data reveals significant fluctuations over the analyzed periods, highlighting volatile performance and capital utilization.

Net Operating Profit After Taxes (NOPAT)

The NOPAT showed an initial strong increase from 1,330 million US dollars in 2020 to 3,517 million US dollars in 2021. However, this was followed by a sharp decline into negative territory, with losses of 138 million US dollars in 2022 and 201 million US dollars in 2023. A partial recovery is observed in 2024, with profits returning to a positive 621 million US dollars, though still substantially lower than the peak in 2021.

Cost of Capital

The cost of capital displayed relative stability across the periods, hovering slightly above 21%, with minor fluctuations between 21.35% and 21.66%. This consistency suggests a stable weighted average cost of capital, implying that changes in profitability and investment outcomes are not due to shifts in capital costs.

Invested Capital

There is a dramatic increase in invested capital from 6,195 million US dollars in 2021 to 58,525 million US dollars in 2022. This elevated level persists through 2023 and 2024, remaining approximately within the 57,883 to 58,227 million US dollars range. Such a substantial rise suggests significant capital deployment or asset acquisitions during 2022, which appears to be sustained in the following years.

Economic Profit

Economic profit trends mirror those of NOPAT but with more pronounced extremity. Positive economic profits in 2020 (387 million US dollars) and especially 2021 (2,175 million US dollars) switch to large negative values from 2022 onwards, with losses exceeding 12 billion US dollars each year through 2024. These massive negative economic profits, despite stable cost of capital, indicate that the returns on invested capital are falling well below the cost of capital in the recent periods.

Overall, the data indicates a phase of growth and profitability that peaked in 2021 followed by significant operational and financial challenges. The sharp increase in invested capital starting in 2022 has not translated into profitable returns, as reflected by the deep economic losses and negative NOPAT in subsequent years. The partial NOPAT recovery in 2024 suggests early signs of improvement, though economic profits remain substantially negative, highlighting ongoing issues in generating value above capital costs.

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.

Economic Profit

The economic profit demonstrates significant volatility over the analyzed period. It increased notably from 387 million USD in 2020 to 2,175 million USD in 2021, reflecting a period of strong value generation. However, from 2022 onwards, economic profit turned negative and worsened substantially, reaching -12,630 million USD in 2022, and remaining deeply negative through 2023 and 2024, albeit with a slight improvement in 2024 to -11,918 million USD. This shift indicates a sharp decline in the company’s ability to generate returns above the cost of capital starting in 2022.

Invested Capital

Invested capital grew steadily from 4,364 million USD in 2020 to 6,195 million USD in 2021. However, there was a dramatic increase in 2022 to 58,525 million USD, followed by relatively stable levels around 58,000 million USD in 2023 and 2024. This substantial rise in capital investment coincides with the period of economic profit decline, suggesting significant expansion or capital expenditure activities that have yet to translate into commensurate returns.

Economic Spread Ratio

The economic spread ratio, representing the return above the cost of capital, followed a similar pattern to economic profit. It improved markedly from 8.86% in 2020 to 35.11% in 2021, indicating high profitability relative to invested capital. However, it turned negative from 2022, dropping to -21.58% and declining slightly further in subsequent years to around -20%. This negative spread confirms that the returns on invested capital have been significantly below the cost of capital since 2022.

Overall Analysis

The data reflect a period of strong economic performance and efficient capital use up to 2021. Beginning in 2022, despite a major increase in invested capital, both economic profit and economic spread ratio declined sharply into negative territory, indicating challenges in leveraging increased investments to generate value. The slight improvement in economic profit in 2024 is notable but insufficient to reverse the negative trend. This scenario suggests a potentially high-risk environment where recent investments have not yet yielded positive returns.

The financial data reveals several notable trends regarding performance and profitability over the five-year period.

Net Revenue

There is a consistent growth trend in net revenue. Starting from approximately $9.8 billion in 2020, the revenue increased significantly to over $16.4 billion in 2021, further rising to about $23.6 billion in 2022. Although there was a slight dip in 2023 to just over $22.6 billion, the revenue rebounded in 2024 to nearly $25.8 billion. This overall trend indicates strong top-line growth despite minor fluctuations.

Economic Profit

Economic profit experienced a dramatic shift during the period. In 2020, the company earned a positive economic profit of $387 million, which surged substantially to $2.175 billion in 2021. However, from 2022 onwards, there was a notable reversal, with economic profit turning sharply negative, reaching a loss of approximately $12.63 billion in 2022 and maintaining a similar negative level throughout 2023 and 2024. This transition suggests increasing costs or capital charges outpacing operating profits during the latter three years.

Economic Profit Margin

The economic profit margin mirrored the pattern observed in economic profit. It began at a positive 3.96% in 2020, improving to a strong 13.23% by 2021. Following this peak, the margin deteriorated substantially, plunging to negative figures exceeding -50% in 2022 and 2023, with a marginal improvement in 2024 to roughly -46.22%. These margins indicate a significant decline in the company’s ability to generate returns above its cost of capital.

In summary, despite solid revenue growth over the period, the company’s profitability as measured by economic profit and its margin experienced a severe downturn starting in 2022. This divergence suggests underlying challenges affecting the company's cost structure or investment returns, which could warrant further investigation into operating expenses, capital efficiency, or changes in business strategy during the negative performance years.