In fiscal 2021, AMD set records in many ways. The company achieved rapid revenue growth in its core business in fiscal 2021 and has raised revenue expectations in each of the past two quarters.
In response, Seekingalpha, a Wall Street firm financial analyst firm, analyzed AMD's overall financial situation over the past fiscal year. AMD's revenue grew 54% year-over-year in the third quarter and was guided by the company's strong execution to generate a record revenue of $4.31 billion. In the computing and graphics business, Ryzen, Radeon and AMD Instinct processors for gamers generated $2.4 billion in revenue in the third quarter, up 44% year-over-year.
The average selling price/ASP of processors continued to rise in the third quarter due to strong demand from end markets. Among them, the fastest growing is AMD, because customers have accelerated the absorption of EPYC server processors. In the third quarter, AMD Enterprise revenue increased 69% year-over-year to $1.69 billion.
In the third quarter, AMD Enterprise Revenue increased 69% year-over-year to $1.69 billion. The company expects total revenue to increase 65% year-over-year in fiscal 2021.
AMD's revenue per fiscal quarter in recent years
Both Nvidia and AMD have announced that they are currently under regulatory review. Nvidia wants to acquire britain's ARM to gain access to its chip architecture and save on licensing fees. AMD wants to acquire Xilinx to strengthen its data center business and gain synergies from its business portfolio. To that end, in a proposed $35 billion deal last October, AMD offered to trade 1.7234 shares of AMD in exchange for every Xilinx stake. The transaction is currently under review by China's State Administration for Market Regulation. A final decision is expected shortly. Because AMD has made concessions to antitrust regulators and assured that the deal will not affect the Chinese market, the likelihood of the deal being approved has increased dramatically. The report also shows that the transaction will be approved. Recently, AMD's stock price experienced a 16% decline, in part because the market was cautious before Chinese regulators made a trading decision. If the acquisition is approved, AMD's stock price could rebound.
AMD's free cash flow improved significantly in the first quarter of 2021 due to increased demand for processors in end markets, increased pricing of products, and increased margins. AMD's free cash flow outlook is still undervalued. However, due to strong market conditions, AMD's products are still in high demand. In the third quarter, AMD generated $764 million in free cash flow and sales of $4.13 billion. This translates into a free cash flow margin of 18%. Total, free cash flow in the third quarter of 21 years increased 2.9 times year-over-year due to AMD's massive revenue growth and improved revenue-to-cash conversion.
AMD's free cash flow margin for the first nine months of fiscal 2021 was 21 percent. If the pricing of the client processor ASP remains strong in fiscal 2022, AMD's free cash flow margin could reach 30% next year.
AMD's free cash flow
AMD's free cash flow rate is 1.68%, which is much higher than NVIDIA's free cash flow yield.
AMD currently has one of the strongest lineups in recent years. The Ryzen gaming processor is out of stock, as is AMD's Radeon graphics card. These products are especially popular with gamers. The shortage of GPUs, and in part due to demand from cryptocurrency miners, has led to a spike in the price of the graphics card market, pushing the average selling price up. AMD has also had great success with its third-generation EPYC server processors, which are based on the Zen 3 microarchitec of AMD's 3rd generation EPYC servers to deliver faster application performance and increase business productivity.
AMD will launch new processors next year, which could lead to accelerated revenue growth and an increase in free cash.
As a new upgrade cycle kicks in, this could lead to an acceleration in revenue growth and higher free cash flow margins.
A new upgrade cycle begins. In the first quarter of '22, AMD will launch a new server chip for the first time, the Milan-X CPU.
The Milan-X CPU, which builds on AMD's new 3D-Cache technology, promises a 50% increase in performance. The release of the new Milan-X processor could lead to an acceleration in server CPU sales. In fiscal year 2022, server CPU sales in AMD's already booming enterprise division will accelerate.
AMD and Nvidia are great companies with great products, but I think AMD is better because its growth is discounted relative to Nvidia. AMD is expected to generate $19.1 billion in revenue in fiscal year 2022, an estimate that grossly undervalues AMD. I believe AMD will generate $21.7 billion in revenue +/-$800 million in fiscal year 2022, and the company will continue to grow much faster than market forecasts as product pricing and demand for processors remain strong as it enters fiscal 2022.
However, if we just follow the forecast of revenue of $19.1 billion next year, AMD's market capitalization to sales ratio is 8.7 times, while Nvidia-based fiscal 2022 revenue is estimated at $31.5 billion, and its market capitalization to sales ratio is 22.1.
Nvidia's sales growth is expected to outpace AMD during the 2021-2025 fiscal year. Wall Street expects AMD's fiscal 2022 revenue to be $21.7 billion (up and down $800 million).
AMD vs. Nvidia, Market Cap/Sales Comparison
AMD's gross margin for the third quarter improved by 4 percentage points year-over-year, and it is estimated that in fiscal year 2022, AMD will be able to extend its recent margin growth. Due to the advantages of GPU pricing and the growing demand for high-performance processors in the server market, the decline in gross margins and the decline in the average selling price of CPUs and GPUs may be a warning sign, indicating a slowdown in revenue.
AMD's gross margin status every quarter in recent years
AMD will continue to grow rapidly in its core business in fiscal year 2022, particularly in the server business. Even compared to fiscal year 2021, an acceleration in revenue is not impossible. Considering that AMD will launch a new high-performance server chip next year, this will start a new upgrade cycle. (Proofreading/Yuki)