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nabla9

If you think P/E ratio of 25 to be reasonable after the growth spurt slows down, AMD's earnings must grow

10% per year next 20 years, or

20% per year next 10 years, or

30% per year next 8 years, or

50% per year next 5 years

to get P/E 25 with current price.

I don't think the price is unreasonably high but I don't think ROI will be very high if you buy AMD today.

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Looking at earnings growth as a steady process can be misleading when profit margins vary. Intel has a 26% net margin, and AMD is just over 8%, so if AMD gets Intel's pricing power their earnings could be 3X as high before any change in revenue. For a look at the pathological case, realize that a company that breaks even one year and makes a trivially small profit the next has experienced infinite earnings growth.

That being said, I agree it looks like AMD stock is priced for something spectacular to happen, which makes me more excited about their chips than their stock.

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