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Why Is AMD Borrowing Money if Profits are Booming? | AMD Stock Analysis

Parkev Tatevosian, CFA•Aug 19, 2026

Summary

Parkev analyzes AMD's upcoming $5 billion bond sale, noting it could be the company's largest ever and might even be upsized due to strong market demand for AI-related debt. Parkev suggests that while AMD will use some proceeds to refinance $875 million in debt maturing next month, the primary goal is to lower the weighted average cost of capital (WACC) by favoring debt over more expensive equity. Parkev calculates AMD's cost of equity at 16.3% compared to an after-tax cost of debt of just 5.75%, explaining that this shift makes the company more valuable by reducing the discount rate applied to future earnings.

AMD (Advanced Micro Devices): Parkev maintains a bullish outlook on the stock, emphasizing that the management's decision to borrow money despite having significant cash flow is a sophisticated financial move to boost valuation. Parkev projects that AMD's free cash flow will grow from $7.4 billion in 2024 to $43 billion by 2030, making the present value of the stock higher when discounted at the new calculated WACC of 13.66%. Parkev concludes that lowering the denominator in valuation models through cheaper debt serves as a long-term catalyst for stock price appreciation.

Mentioned Stocks

AMD
Sentiment: BUYAction: RECOMMENDED

Reasoning: Parkev explains that AMD's move to raise $5 billion in debt is strategically sound because its cost of debt (5.75%) is significantly lower than its cost of equity (16.3%). Parkev projects massive growth in free cash flow, estimating $7.4 billion for 2024, $16 billion for 2025, $29 billion for 2026, $33 billion for 2027, and $43 billion by 2030. By applying a lower weighted average cost of capital (13.66%) to these projections, Parkev argues the intrinsic valuation of the company increases.

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