Analyst's Notes. Argus Recommendations

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1 Report created Oct 26, 2017 Page 1 OF 6 Advanced Micro Devices is the number-two player in x86-based microprocessors, behind Intel, and - with the 2008 acquisition of ATI - a top player in graphic processors. During 2009, Advanced Micro Devices spun off its foundry operations into a joint venture called Global Foundries. In 2013, Advanced Micro Devices reported $5.3 billion in revenue. In mid-2014, AMD underwent an internal reorganization, aligning businesses along functional lines and creating a single internal infrastructure. Analyst's Notes Analysis by Jim Kelleher, CFA, October 26, 2017 ARGUS RATING: HOLD Strong quarter upended by Blockchain concerns; reiterate HOLD Advanced Micro Devices dropped 12% on 10/25/17 despite reporting strong growth and above-consensus 3Q results. The selloff may reflect investors taking profits off the table following a rocket ride in the shares. Concern that crypto-currency demand has leveled off also contributed to the selloff. Beyond this sideshow, AMD appears to be doing well in its core businesses of CPU, GPU, and semi-custom and embedded chips. The EPYC server processor business is off to a good start with cloud service providers (CSPs). Should investors continue to punish AMD for slowdown in a fringe business (crypto-currency mining), the AMD shares could potentially move back into a more attractive valuation range. For now, AMD appears fairly valued, and we reiterate our HOLD rating on the shares. INVESTMENT THESIS HOLD-rated Advanced Micro Devices Inc. (NYSE: AMD) dropped 12% on 10/25/17 despite reporting strong growth and above-consensus 3Q results the prior evening. Guidance for 4Q17 was similarly strong and above-consensus, suggesting the selling may reflect investors taking profits off the table following a rocket ride in the shares. AMD management conceded that crypto-currency demand has leveled off, which was another reason cited by investors for the selloff. Beyond this sideshow, AMD appears to be doing well in its core businesses of CPU, GPU, and semi-custom and embedded chips. Computing & Graphics revenue jumped 74% year-over-year, aided by volume growth and higher prices for new Ryzen desktop CPUs and Radeon GPUs. Enterprise, embedded & semi-custom sales were flat as major gaming consoles cool in the absence of major upgrades. Better mix and higher prices are helping this perpetually unprofitable company sustain overall profitability. AMD raised its full-year sales growth guidance to above 20% from a prior high-teens forecast. Should investors continue to punish AMD for slowdown in a fringe business Data Pricing reflects previous trading week's closing price. 200-Day Moving Average Price ($) Rating EPS ($) Quarterly Week High: $ Week Low: $12.00 Closed at $13.81 on 10/20 Annual ( Estimate) 0.27 ( Estimate) Revenue ($ in Bil.) Quarterly Annual ( Estimate) 5.6 ( Estimate) FY ends Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Dec BUY HOLD SELL Argus Recommendations Twelve Month Rating SELL HOLD BUY Five Year Rating SELL HOLD BUY Rating Weight Under Over Weight Weight Argus assigns a 12-month BUY, HOLD, or SELL rating to each stock under coverage. BUY-rated stocks are expected to outperform the market (the benchmark S&P 500 Index) on a risk-adjusted basis over the next year. HOLD-rated stocks are expected to perform in line with the market. SELL-rated stocks are expected to underperform the market on a risk-adjusted basis. The distribution of ratings across Argus' entire company universe is: 50% Buy, 45% Hold, 6% Sell. Key Statistics Key Statistics pricing data reflects previous trading day's closing price. Other applicable data are trailing 12-months unless otherwise specified Overview Price $12.33 Target Price Week Price Range $6.22 to $15.65 Shares Outstanding Million Dividend $0.00 Overview Technology Rating OVER WEIGHT Total % of S&P 500 Cap % Financial Strength Financial Strength Rating MEDIUM Debt/Capital Ratio 77.5% Return on Equity 21.8% Net Margin -1.4% Payout Ratio -- Current Ratio 1.88 Revenue $4.96 Billion After-Tax Income -$69.00 Million Valuation Current FY P/E Prior FY P/E -- Price/Sales 2.36 Price/Book Book Value/Share $0.55 Capitalization $11.67 Billion Forecasted Growth 1 Year EPS Growth Forecast N/A 5 Year EPS Growth Forecast 15.00% 1 Year Dividend Growth Forecast N/A Risk Beta 2.33 Institutional Ownership 59.60%

2 Report created Oct 26, 2017 Page 2 OF 6 Analyst's Notes...Continued (crypto-currency mining), the AMD shares could potentially move back into a more attractive valuation range. For now, AMD appears fairly valued, and we reiterate our HOLD rating on the shares. RECENT DEVELOPMENTS AMD is up 13% year-to-date in 2017, versus a 33% gain for the Argus semiconductor peer group. AMD shares rose 295% in 2016, compared with a 70% peer-group gain; the shares began 2016 below $3 and bottomed at $1.90, before rallying to $11 by year-end. AMD shares rose 7% in 2015; dropped 31% for 2014; rose 61% in 2013; declined 58% in 2012; declined 34% in 2011; and fell 15% in For 3Q17, Advanced Micro Devices reported revenue of $1.64 billion, which was up 26% year-over-year and 35% sequentially. Revenue was above management's guidance of 20%-26% revenue growth on a sequential basis, which would have put sales in the $1.47-$1.54 billion range; and above the $1.51 billion consensus estimate. Non-GAAP profit for 3Q17 totaled $0.10 per diluted share, compared with non-gaap profit of $0.03 a year earlier and $0.02 in 2Q17. The Street had been modeling non-gaap EPS of $0.08 for the quarter. While a 13% gain is not a bad year for any stock, consider that AMD was up 35% year-to-date at the time of its 2Q17 results release in July. AMD is coming off a 2016 trading year in which the stock rose more than 250%. The risk after a bottle-rocket gain of that sort is that investors will be tempted to take profits and redeploy in what they see as the next bottle-rocket. Regarding the 12% selloff in AMD shares on a down day for the stock market, we believe investors used an excuse - management's stated moderation in demand for high-end GPUs used in crypto-currency mining - to take money off the table. Beyond this sideshow, AMD appears to be doing well in its core businesses of CPU, GPU, and semi-custom and embedded chips. The two businesses were equal in size in 3Q17, although one business stalled while the other hit fresh highs. For 3Q17, Computing & Graphics (C&G) revenue of $819 million (50% of total) rose 74% annually and 24% sequentially. After a skimpy $7 million profit in 2Q17, C&G operating profit surged to $70 million in 3Q17, versus a year-earlier loss of $66 million. C&G margin expanded to 8.5% in 3Q17 from 1.1% in 2Q17. During 2Q17, C&G achieved operating profitability for the first time in three years based on success of Ryzen desktop processors and Radeon GPU demand. Profits grew 10-fold on a sequential basis as demand expanded and new CPUs and GPUS commanded higher prices. In addition to expanding Ryzen to the enterprise desktop in 3Q17, during the quarter AMD qualified and began early shipments of Ryzen mobile processors. These units combine Zen CPU cores with Vega GPU cores in a high performance APU designed for ultra-thin and 2-in-1 notebooks. Acer, Lenovo, and Growth & Valuation Analysis GROWTH ANALYSIS ($ in Millions, except per share data) Revenue 5,422 5,299 5,506 3,991 4,272 COGS 4,187 3,321 3,667 2,911 3,274 Gross Profit 1,235 1,978 1,839 1, SG&A R&D 1,354 1,201 1, ,008 Operating Income -1, Interest Expense Pretax Income -1, Income Taxes Tax Rate (%) Net Income -1, Diluted Shares Outstanding EPS Dividend GROWTH RATES (%) Revenue Operating Income Net Income EPS Dividend Sustainable Growth Rate ,236.7 VALUATION ANALYSIS Price: High $8.35 $4.65 $4.80 $3.37 $12.42 Price: Low $1.81 $2.26 $2.35 $1.61 $1.75 Price/Sales: High-Low P/E: High-Low Price/Cash Flow: High-Low Financial & Risk Analysis FINANCIAL STRENGTH Cash ($ in Millions) ,264 Working Capital ($ in Millions) 1, ,184 Current Ratio LT Debt/Equity Ratio (%) 1, Total Debt/Equity Ratio (%) 1, RATIOS (%) Gross Profit Margin Operating Margin Net Margin Return On Assets Return On Equity ,850.0 RISK ANALYSIS Cash Cycle (days) Cash Flow/Cap Ex Oper. Income/Int. Exp. (ratio) Payout Ratio The data contained on this page of this report has been provided by Morningstar, Inc. ( 2017 Morningstar, Inc. All Rights Reserved). This data (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. This data is set forth herein for historical reference only and is not necessarily used in Argus analysis of the stock set forth on this page of this report or any other stock or other security. All earnings figures are in GAAP.

3 Report created Oct 26, 2017 Page 3 OF 6 Analyst's Notes...Continued HP are among the OEMs launching Ryzen mobile-based systems in time for the holiday season. In the GPU space, AMD posted record revenue based on 'significantly improved pricing' and higher volumes year-over-year. In addition to Vega-based Radeon GPUs, AMD saw strong demand for Polaris GPUs across gaming and Blockchain. The company expressed caution about cryptocurrency going forward, however. In cryptocurrency mining, users make a profit from providing bookkeeping services and verifying transactions for blockchain currencies such as Ethereum (an alternative to bitcoin). For several months we have been stating our belief that cryptocurrency mining is in a 'gold rush' phase, where more money is being made selling pickaxes (GPUs) to the miners than is being made from mining blockchain currencies. As such, a cooling from the initial hysteria was inevitable. AMD is also moving into the GPU compute market with its Radeon Instinct M125, which began shipping in volume to cloud data center customers during 3Q17. AWS is deploying Radeon Pro series for accelerated cloud delivery of virtual applications. AMD is collaborating with Baidu to build GPU compute platforms. EE&SC (Enterprise, Embedded and Semi-Custom) revenue of $824 million (50% of total) declined 1% year-over-year while surging 46% sequentially. That gain came on top of 44% sequential growth in 2Q17, as console makers Sony and Microsoft began their holiday build-up. This business will just as predictably fall off quarter-over-quarter in 4Q17 and bottom in 1Q18. During 2Q17, AMD generated initial revenue from EPYC data center processor shipments. This business strengthened in 3Q17, contributing to top-line growth from 2Q17. Three super-seven data center CSPs- Baidu, Azure, and Tencent - have announced plans to deploy EPYC. EE&SC operating profit of $84 million declined 38% year-over-year, while doubling on a sequential basis from $41 million for 2Q17. Margin recovered to 10.2% from 7.5% in 2Q17, although that lagged 12.3% operating margin for all of We expect 3Q17 to be the biggest quarter for this business as the console makers go into full building mode; AMD will be challenged in 4Q17 to hold EE&SC op margin above 10%. For 4Q17, AMD guided for revenue of $1.34-$1.44 billion; the pre-reporting consensus was $1.34 billion. At the guidance midpoint, 4Q17 revenue will be down 15% sequentially but up 25% year-over-year. And full-year revenue growth for 2017 would exceed 20%; in July, AMD was still guiding for sales growth of mid-to-high teens for the full year. We expect the company to earn $0.06-$0.08 in 4Q17, with some uncertainty built in around EE&SC deceleration and blockchain. We share investors' concerns that the crypto-currency gold rush boosted both demand and pricing in 3Q17 to what could prove to be unsustainable levels. We would like to analyze AMD's performance in a less-fevered quarter. While AMD has come off its highs and is now relatively underperforming its peer group year-to-date, the stock has not yet Peer & Industry Analysis The graphics in this section are designed to allow investors to compare AMD versus its industry peers, the broader sector, and the market as a whole, as defined by the Argus Universe of Coverage. The scatterplot shows how AMD stacks up versus its peers on two key characteristics: long-term growth and value. In general, companies in the lower left-hand corner are more value-oriented, while those in the upper right-hand corner are more growth-oriented. The table builds on the scatterplot by displaying more financial information. The bar charts on the right take the analysis two steps further, by broadening the comparison groups into the sector level and the market as a whole. This tool is designed to help investors understand how AMD might fit into or modify a diversified portfolio. P/E Value XLNX FSLR VSM CAVM MCHP SWKS 5-yr Growth Rate(%) LRCX AMD Growth 5-yr Net 1-yr EPS Cap Growth Current Margin Growth Argus Ticker Company ($ in Millions) Rate (%) FY P/E (%) (%) Rating LRCX Lam Research Corp 32, BUY MCHP Microchip Technology Inc 21, BUY SWKS Skyworks Solutions Inc 19, BUY XLNX Xilinx Inc 17, BUY AMD Advanced Micro Devices Inc. 11, HOLD FSLR First Solar Inc 4, HOLD CAVM Cavium Inc 4, BUY VSM Versum Materials Inc 4, HOLD Peer Average 14, P/E Price/Sales Price/Book PEG 5 Year Growth Debt/Capital

4 Report created Oct 26, 2017 Page 4 OF 6 Analyst's Notes...Continued moved into an attractive valuation range that would prompt our ratings upgrade. EARNINGS & GROWTH ANALYSIS For 3Q17, Advanced Micro Devices reported revenue of $1.64 billion, which was up 26% year-over-year and 35% sequentially. Revenue was above management's guidance of 20%-26% forecast revenue growth on a sequential basis, which would have put sales in the $1.47-$1.54 billion range; and above the $1.51 billion consensus estimate. Non-GAAP gross margin expanded sequentially to 35.2% in 3Q17 from 33.1% in 2Q17 and from 30.5% a year earlier. Non-GAAP profit for 3Q17 totaled $0.10 per diluted share, compared with non-gaap profit of $0.03 a year earlier and $0.02 in sequentially adjacent 2Q17. The Street had been modeling non-gaap EPS of $0.08 for the quarter. For all of 2016, AMD posted revenue of $4.27 billion, up 7% from $3.99 billion in On a non-gaap basis, AMD posted a loss of $0.15 per share in 2016, compared to a loss of $0.54 per share in For 4Q17, AMD guided for revenue of $1.34-$1.44 billion; the pre-reporting consensus was $1.34 billion. At the guidance midpoint, 4Q17 revenue will be down 15% sequentially but up 25% year-over-year. For 4Q17, non-gaap gross margin was forecast at 35%, and non-gaap operating costs at $410 million. On that basis, we expect the company to earn $0.06-$0.08 in 4Q17, with some uncertainty built in around EE&SC deceleration and blockchain. Based on 4Q17 top-line guidance, full-year revenue growth for 2017 should exceed 20%; in July, AMD was still guiding for sales growth of mid-to-high teens for the full year. The company expects to improve non-gaap operating margins year-over-year from 31% for 2016, and to deliver non-gaap net income. We are raising our 2017 non-gaap EPS forecast to a profit of $0.16 per diluted share, from $0.12 per diluted share. We are raising our 2018 non-gaap profit forecast to $0.27 per diluted share, from $0.23. Our GAAP estimates are a profit of $0.02 per diluted share for 2017 and a profit of $0.09 per diluted share for FINANCIAL STRENGTH & DIVIDEND Our financial strength rating for AMD is Medium. AMD has successfully re-profiled its debt. During 3Q16, AMD issued $690 million worth of common shares and also $700 million in 2.25% convertible notes due AMD used the majority of the $1.4 billion in funds raised to pay down higher-interest debt. Altogether, the combination of reduced and re-profiled debt is expected to save AMD about $55 million in annual interest costs. Cash was $879 million at 3Q17, reduced from year-end 2016 by use of cash in working capital (related to wafer purchases in anticipation of a strong 3Q17). Cash was $1.26 billion at the end of 2016, $785 million at year-end 2015, $1.04 billion at the end of 2014, $1.19 billion at year-end 2013, and $1.18 billion at year-end Cash & securities totaled $1.9 billion at the end of 2011, $1.79 billion at year-end 2010, and $2.67 billion at the end of Debt was $1.43 billion at 3Q17. Debt was $1.44 billion at the end of 2016, reduced from $2.24 billion at 2Q16. Debt was $2.26 billion at year-end 2015, $2.21 billion at the end of 2014, $2.05 billion at year-end 2013, $2.04 billion at year-end 2012, $2.0 billion at the end of 2011, and $2.18 billion at year-end As a result of the debt pay-downs (from Intel settlement proceeds) in 1Q10 and the transfer of debt obligations to GF, debt was reduced from $4.55 billion at the end of 2009 and peak debt of $5.86 billion at the end of 3Q09. Net debt was $547 million at 3Q17, rising from year-end 2016 on cash use for wafer purchases. Net debt was $171 million at the end of 2016, reduced from $1.63 billion at 2Q16. Net debt was $1.48 billion at year-end 2015, $1.17 billion at year-end 2014, and $871 million at the end of Net debt at year-end 2012 was $859 million, compared to $102 million at year-end 2011, $403 million at the end of 2010, $1.88 billion at the end of 2009, and $3.89 billion at the end of Cash flow from operations was $90 million for 2016, compared with cash use from operations of $237 million for Cash use from operations was $98 million in 2014; $148 million in 2013; and $338 million in Cash flow from operations was $382 million in AMD had a cash use from operations of $412 million in 2010, and generated cash flow from operations of $473 million in We do not expect AMD to pay a dividend in 2017 or Share repurchases are primarily used to offset dilution from stock-based compensation. MANAGEMENT & RISKS Dr. Lisa Su became CEO in October The CFO is Devinder Kumar, appointed to that role early in We believe the IP monetization strategy, as well as success in EE&SC, could give CEO Su a longer leash than was given to prior CEOs. But the company is also battling structural decline in PCs, lending uncertainty to CEO tenure at AMD. AMD has been betting heavily on nontraditional businesses including embedded, micro-server, and semi-custom (gaming console). Simultaneously, AMD is supporting both stand-alone CPU and GPU lines as well as its APU line that combines compute and graphics processing on a single die. The new CEO must consider exiting some businesses. Spinning off the ATMP Asian operations into the NFME JV is part of that plan. A long-running risk for AMD is that the decline in PC demand is more structural than cyclical, and that AMD is exposed to industry niches that are feeling the structural impact more sharply than its more diversified rival, Intel. In our view, tablets and smartphones will not displace PCs, although they have clearly changed the industry dynamic. AMD must demonstrate its ability to compete in all parts of the compute value chain, including tablets and smartphones, and eventually as an ARM licensee as well. An ongoing risk for AMD is the perception that the exceptional executive turnover under CEO Read signals unusual turmoil in the executive suite. We believe that Wall Street will give the new CEO a pass as long as the company executes on its strategic priorities. AMD also faces the risk that the sharp sequential step-down is more than a reflection of global softness and represents significant share loss. While AMD may have lost some share, we think the company's ASP Fusion strategy and price-leader tactics will help it preserve most of its current share, though market share gains now look more difficult. COMPANY DESCRIPTION Advanced Micro Devices is the number-two player in x86-based

5 Analyst's Notes...Continued microprocessors, behind Intel, and - with the 2008 acquisition of ATI - a top player in graphic processors. During 2009, Advanced Micro Devices spun off its foundry operations into a joint venture called Global Foundries. In 2013, Advanced Micro Devices reported $5.3 billion in revenue. In mid-2014, AMD underwent an internal reorganization, aligning businesses along functional lines and creating a single internal infrastructure. VALUATION Given our expectations for fractional non-gaap profits for 2017 and only modest growth into 2018, along with a multi-year history of operating losses, AMD shares trade at meaningless P/E ratios. Historical comparable valuation for AMD indicates value slightly in the $9-$10 range, in a slowly rising trend. Our discounted free cash flow assumptions render a fair value in the low-double-digits, also rising. Blending these approaches, we arrive at a blended value of $12 per share, in a rising trend. While that fair value was formerly well below July prices in the mid-teens, AMD now trades within 10% of our blended value estimate, and that is consistent with a HOLD rating.. Despite progress in EE&SC and the promise of the Ryzen family in CPU, Vega in GPU, and EPYC in data center, AMD remains over-represented in less profitable niches such as lower-tier notebooks and console gaming. We reiterate our HOLD rating on AMD. On October 26 at midday, HOLD-rated AMD closed at $12.01, down $0.32. NASDAQ: AMD Report created Oct 26, 2017 Page 5 OF 6

6 METHODOLOGY & DISCLAIMERS Report created Oct 26, 2017 Page 6 OF 6 About Argus Argus Research, founded by Economist Harold Dorsey in 1934, has built a top-down, fundamental system that is used by Argus analysts. This six-point system includes Industry Analysis, Growth Analysis, Financial Strength Analysis, Management Assessment, Risk Analysis and Valuation Analysis. Utilizing forecasts from Argus Economist, the Industry Analysis identifies industries expected to perform well over the next one-to-two years. The Growth Analysis generates proprietary estimates for companies under coverage. In the Financial Strength Analysis, analysts study ratios to understand profitability, liquidity and capital structure. During the Management Assessment, analysts meet with and familiarize themselves with the processes of corporate management teams. Quantitative trends and qualitative threats are assessed under the Risk Analysis. And finally, Argus Valuation Analysis model integrates a historical ratio matrix, discounted cash flow modeling, and peer comparison. THE ARGUS RESEARCH RATING SYSTEM Argus uses three ratings for stocks: BUY, HOLD, and SELL. Stocks are rated relative to a benchmark, the S&P 500. A BUY-rated stock is expected to outperform the S&P 500 on a risk-adjusted basis over a 12-month period. To make this determination, Argus Analysts set target prices, use beta as the measure of risk, and compare expected risk-adjusted stock returns to the S&P 500 forecasts set by the Argus Strategist. A HOLD-rated stock is expected to perform in line with the S&P 500. A SELL-rated stock is expected to underperform the S&P 500. Argus Research Disclaimer Argus Research is an independent investment research provider and is not a member of the FINRA or the SIPC. Argus Research is not a registered broker dealer and does not have investment banking operations. The Argus trademark, service mark and logo are the intellectual property of Argus Group Inc. The information contained in this research report is produced and copyrighted by Argus, and any unauthorized use, duplication, redistribution or disclosure is prohibited by law and can result in prosecution. The content of this report may be derived from Argus research reports, notes, or analyses. The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Argus makes no representation as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. This report is not an offer to sell or a solicitation of an offer to buy any security. The information and material presented in this report are for general information only and do not specifically address individual investment objectives, financial situations or the particular needs of any specific person who may receive this report. Investing in any security or investment strategies discussed may not be suitable for you and it is recommended that you consult an independent investment advisor. Nothing in this report constitutes individual investment, legal or tax advice. Argus may issue or may have issued other reports that are inconsistent with or may reach different conclusions than those represented in this report, and all opinions are reflective of judgments made on the original date of publication. Argus is under no obligation to ensure that other reports are brought to the attention of any recipient of this report. Argus shall accept no liability for any loss arising from the use of this report, nor shall Argus treat all recipients of this report as customers simply by virtue of their receipt of this material. Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance. Argus has provided independent research since Argus officers, employees, agents and/or affiliates may have positions in stocks discussed in this report. No Argus officers, employees, agents and/or affiliates may serve as officers or directors of covered companies, or may own more than one percent of a covered company s stock. Morningstar Disclaimer 2017 Morningstar, Inc. All Rights Reserved. Certain financial information included in this report: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.