"Intel warns Ohio factory could be delayed because Congress is dragging its feet on funding"
Does $INTC really need subsidies from Congress to build a factory in Ohio?

No, because Intel is a well-capitalized business and they don't need any financial support from the government to build factories in America. Subsidies will only make management lazier and less interested in remaining competitive.

Looking at China's semiconductor industry, despite the government pouring billions of dollars, Chinese chips aren't as great compared to foreign chips.

If Intel really needs a reason to build a chip factory in Ohio, it would be because it needs to diversify its operations and reduce the geopolitical risks that it's exposed to in Asia.

Dylan Patel's avatar
$97m follower assets
What to watch for the week beginning 6/6/22
Check out my watchlist of potential market catalysts I’m most interested in for the week beginning June 6th. Feel free to save it for reference, repost it online and share it in your trade groups. Let me know what you’ll be watching this week and be sure to follow me for more helpful graphics. $SPY $QQQ $AMZN $AAPL $NVDA $TSM $FB $DOCU $AMD $INTC $UBER $ABBV $MRK
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Weekly Economic Analysis and Portfolio Update
Below is a paraphrase of the full portfolio update and market review article I write weekly. Click here for a full portfolio with more statistics, an economic review, plus a break down of all my trades (which you can see in my Commonstock profile as well), and what stocks I'll be looking to buy next week.

Market Review

"The first week of June was a short one! Short in terms of trading days, but also short in terms of the market movement as it failed build on last week’s gains. The market this week showed renewed seller’s interest off of the back of economic concerns, earnings outlooks (looking at you Microsoft), and monetary policy.

As discussed in our monthly market recap, JPMorgan Chase (JPM) CEO Jaime Dimon said that he sees a storm ahead, whether it’s an “economic hurricane” or a slight down pour, we need to ready. He and JPM will do so by being conservative with their balance sheet. On Friday, Elon Must said that he had a bad feeling about the economy and that his electric car company Tesla (TSLA) needs to freeze hiring and cut 10% of staff.

Every S&P sector finished Friday in the red with the exception of the energy sector. Healthcare, real estate, financial, and consumer staples were the worst performers. Energy was the best performer followed by information technology at a distant second. The energy sector’s performance this week was a result of oil prices pushing higher off an announcement by the EU to ban 90% of Russian crude imports by the end of the year and an announcement from OPEC that they will boost production targets for July and August. OPEC’s oil decision is sound on the surface, however, oil traders saw it as insufficient to meet demand. Demand is expected to rise in the wake of China’s reopening and the EU’s oil ban. WTI crude started the week at $115.07 and are now at $118.87. It had just come off of highs of $120.46 which is the highest level seen since March.

Portfolio

To date, I have invested $9,220 into the account, the total value of all positions plus any cash on hand is $9,497.74. That’s a total gain of 3.01%. The account is down $85.99 for the week which is a 0.9% loss.

I love tracking my portfolio against a benchmark like the S&P. The above chart comes from Sharesight which makes portfolio and dividend management a breeze!

Below is a table of everything we are invested in so far. There you can see my number of shares, shares bought through dividend reinvestments, average cost, gains, and more. The tickers in green are positions that I bought shares in this week.

Dividends

This week we received four dividends. $1.00 from Aflac ($AFL), $3.12 from Intel ($INTC), $2.94 from $XYLD, and $1.96 from Cummins ($CMI).

In my portfolio, all positions have dividend reinvestment enabled. I don’t hold onto the dividend, I don’t try to time the reinvestment, I just let my broker do it automatically. All dividends were reinvested.

Dividends received for 2022: $131.86

Portfolio’s Lifetime Dividends: $154.79"

Again, click here for a full portfolio with more statistics, an economic review, plus a break down of all my trades (which you can see in my Commonstock profile as well), and what stocks I'll be looking to buy next week.
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$AMD is likely to remain a fundamental winner.
"Semiconductors" and "Semi Equipment" consist of peculiar and highly technical industries. They often require high capital expenditures, complex supply chains, massive barriers to entry, and superior R&D leadership - and over all that, they tend to have elements of macro cyclicality as well as secular growth.

Advanced Micro Devices (or $AMD) has had a renaissance over the past few years, primarily from closing the deep performance gap of their CPUs (Central Processing Units) vs. the stewards of the category, Intel ($INTC). Since 2020, it became apparent that pound for pound, or watt for watt, AMD chips were offering better performance than their Intel counterparts, and have since pushed forward widening their lead. The inflexion of wider adoption of AMD, as opposed to Intel, began interestingly in the PC markets, where enthusiasts noticed the advantages and swapped out their old Intel chips for AMD. The following year in 2021, enterprise and data-centre use cases followed, along with big contracts from gaming consoles. Now "Enterprise, Embedded, and Semi-Custom" makes for the majority of their revenues, and most compute use cases have recognised that AMD is the way to go, positioning their infrastructure and chipsets to adopt it.

Investors such as myself would like answers to the following questions at this point in time:
  • How much more can AMD actually grow long term?
  • How will macro, supply constraints, and a potential recession impact AMD?

On Growth

Source: AMD Presentation, May 2022

The company itself has posted some lofty estimates. The TAM, or the total annual sales opportunity, is several multiples bigger than the current $18.9B in sales (last twelve months) that grew at ~65% YoY. The growth is somewhat murked up by Xilinx's acquisition addition, but excluding it, AMD's Q1 still grew 53% YoY organically. Intel for instance, despite its many performance troubles still did $77.7B in sales, growing at ~0% YoY. Theoretically, if AMD could scale elastically, a 100B TAM isn't really out of the question. That's a big IF though. In the GPU space, for instance, Nvidia simply owns most of the market. Could that be AMD in a few years? Perhaps.

The notable performance advantage on hand has led to the rapid growth of AMD's sales, as well as Free Cash Flow generation at a 20% margin. One might argue, that Intel has held their existing sales because manufacturers like TSMC, which make AMD chips, have been scale-constrained as the boom of compute, data, cloud, and auto have just kept on through the pandemic. One can infer this from more data points and the fact that Intel's FCF margin has been in decline to the low teens % last year from the 20%+ range before 2019.

AMD is therefore in serious market share taking mode vs Intel - in the x86 primary CPU market for PCs, data-centre, enterprise, embedded etc.; and they haven't been shy on exercising pricing power either. These serve to reinvest in development and hunt for new opportunities such as the Xilinx acquisition/integration and the FPGA market. There's a long runway if AMD's tech leadership sustains.

On Supply Chain Capacity.
Supply chain and growth rates are aspects that most of Wall Street try to predict, and often fail to do so accurately. As a long term investor, I like the bigger hunt to the 100B market, judging AMD carefully on their execution towards that goal. To figure out where their supply chain and capacity are heading, I simply go by CEO Dr Lisa Su's earnings call comments, and FY guide.
"For the full year 2022, AMD now expects revenue to be approximately $26.3 billion, an increase of approximately 60% over 2021, up from prior guidance of approximately 31%, driven by the addition of Xilinx and higher server and semi-custom revenue."

Ex Xilinx, which is a roughly $2.5B business, we're still looking at about ~45%+ growth. This is impressive stuff and puts it in high growth territory. Consider it high-quality territory too with an epic 20% FCF margin which is likely to sustain.

It's also worth noting that AMD beat sales guidance and earnings guidance for the past 8 quarters, after the March 2020 shock. In my experience, these trends hold through when a business is market share taking on secular growth.

Macro Headwinds - Why I think cyclicality won't be a big deal.

If we're heading into a recession, then what should we expect? It logically follows that there will be less than trend growth in computing power, upgrades, and so on by consumers and enterprises worldwide. Semiconductors have known to be cyclical industries. That said, AMD has not been demand constrained but supply constrained. All the tech and research points to superior chip offerings, and it's well established that AMD is eating Intel's market share. It's therefore my inference, that Intel is going to take most of the pain should this economy crunch on semis and the CPU market. Upcycle or down cycle, the best products continue to take market share. The discrepancy between $20B and $77B in sales is enough that it won't truly hurt the smaller, nimbler player here. There's beneficial financial leverage built into the performance of these AMD chips.

Of course, we've seen some drawdowns in semi stocks, as the cost of capital, and interest rates have inherently pushed valuations lower, with good reason. AMD saw a drawdown from the $150 range to about $100 too.

EV/S on an NTM (next-twelve-month) basis shows 6.2x; P/FCF should compress to 35x or so one year out with guided growth and sustained margin. AMD isn't going to lose its pricing power anytime soon given the state of its product portfolio, especially when the entire server market is trending towards its products. The potential for permanent loss of capital is relatively minor for prudent investors who keep track of risks in my opinion.

These are not "cheap" multiplies per se, even post drawdown. But with this exponential grower that could seemingly and logically scale sales a few times over, I see good compounding potential from these levels for the next few years. I'd ballpark about 15-20% IRR with some multiple compression baked in.

$AMD forms an anchor stock in my growth portfolio. I'm not expecting leaps and bounds of compounding, but with that cash cushion, secular growth trend, and growth/profit profile, it seems logical to hold onto this rather reliable company - with best in class tech, a solid balance sheet, moat, rockstar CEO in Lisa Su, and big growth potential. I'm long.
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