AMD — Advanced Micro Devices

Will it survive?

• Can it pay its interest? 28.2×
  Comfortable
  Operating income $3.7B ÷ interest expense $131M

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient — it says solvent, not cheap.

• How heavy is the debt? 0.9×
  Conservative
  Total debt $3.2B ÷ operating income $3.7B

  Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.

• How long is cash tied up? 171d
  Capital-hungry
  DSO 67 + DIO 165 − DPO 61 days

  Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash.

Is it a good business?

• Return on invested capital 6%
  Below average
  NOPAT $3.7B ÷ invested capital $60.7B (debt + equity − cash)

  The rate the business earns on the money tied up in it — Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high — pair this with Owner Earnings.

• Owner Earnings (free cash) margin 19%
  Cash machine
  Owner Earnings $6.7B = operating cash $7.7B − capex $974M

  What an owner could take out without starving the business. That's 19% of revenue. Treating stock comp as the real expense it is (less $1.6B of SBC) leaves $5.1B. Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).

• Are earnings backed by cash? 1.78×
  Cash-backed
  Cash from ops $7.7B ÷ net income $4.3B

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy — growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 20%
  Reinvests most of it
  Dividends + buybacks $1.3B ÷ Owner Earnings $6.7B

  Of $6.7B Owner Earnings, $1.3B (20%) went back to shareholders — $0 dividends, $1.3B buybacks. But the buybacks barely exceed stock issued to employees ($1.6B SBC) — net of dilution, little was truly returned. Returning most of it signals a mature cash machine; reinvesting most could mean a long runway — or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 4.39×
  Expanding
  Capex $974M ÷ depreciation $222M

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth — or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency — or a melting asset base). The ratio won't tell you which; the filings will.

Durability & moat — 2016–2025

A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says — judgments, not another chart of the numbers.

• Profitable years 8 of 10

  Lost money in 2 year(s) — look at what happened there before trusting the average.

• Return on capital ≥ 15% 4 of 10 yrs

  A moat shows up as a high return on invested capital that holds year after year — not one good vintage.

• Operating margin −3% → 9%

  Margins are widening — pricing power intact or improving.

• Reinvestment — incremental ROIC 3%

  Reinvested capital earned only a modest return — growth is getting expensive.

• Worst year 2016 · −8.6% op. margin

  Operations went underwater in 2016 — understand why before trusting the good years.