AMD's Hidden Advantage: 1.72x Cash Conversion Beats NVIDIA
AMD generates $1.72 in cash per $1 of profit—the best in semiconductors—while NVIDIA manages only $0.84. This signals AMD's earnings are higher quality and more sustainable despite NVIDIA's explosive growth.
AMD's Hidden Advantage: 1.72x Cash Conversion Beats NVIDIA
Last Updated: November 24, 2025 Data Currency: AMD Q3 2025 (10-Q filed Oct 29, 2025), NVIDIA Q3 2025 (10-Q filed Nov 20, 2025)
TL;DR: While analysts obsess over AMD's 22% data center growth vs NVIDIA's 170%, they're missing the cash quality story. AMD generates $1.72 in cash per $1 of profit—the best in semiconductors—while NVIDIA manages only $0.84. This signals AMD's earnings are higher quality and more sustainable.
The Market Reaction Wall Street Missed
AMD's stock fell 9% in the week following Q3 2025 earnings despite beating both revenue ($9.25B vs $8.74B est) and EPS ($1.20 vs $1.16 est) estimates. Analysts focused intensely on one metric: AMD's 22% year-over-year data center growth looked anemic compared to NVIDIA's explosive 170%+ expansion.
But they completely overlooked a critical quality signal hiding in the cash flow statement.
The Finding: Best-in-Class Cash Conversion
AMD's Operating Cash Flow to Net Income (OCF/NI) ratio for Q3 2025 was 1.72x—meaning every dollar of reported profit generated $1.72 in actual cash. This isn't just good; it's the best among major semiconductor companies.
Here's how AMD stacks up against its peers:
Semiconductor OCF/NI Ratios - Q3 2025 (TTM)
| company | ticker | ocf Ni Ratio | status | interpretation |
|---|---|---|---|---|
| AMD | AMD | 1.72x | ✅ Best-in-Class | $1 profit → $1.72 cash |
| Broadcom | AVGO | 1.34x | ✅ Excellent | Strong cash generation |
| NVIDIA | NVDA | 0.84x | ⚠️ Warning | Working capital consuming cash |
| Intel | INTC | -0.49x | 🔴 Critical | Burning cash despite profit |
Data sourced directly from SEC Edgar filings
Source: SEC EDGAR 10-Q filings, calculated from consolidated cash flow and income statements
What This Means
When a company has an OCF/NI ratio above 1.0x, it means operating activities are generating more cash than the accounting profit reported. This is a strong quality signal—it indicates:
- Earnings are backed by actual cash, not just accounting accruals
- Working capital is contributing positively to cash flow
- Low risk of earnings manipulation or aggressive accounting
AMD's 1.72x ratio means the company is converting profits to cash exceptionally well. For context:
- Above 1.2x = Excellent (AMD, AVGO)
- 1.0-1.2x = Good
- 0.8-1.0x = Warning territory (NVDA)
- Below 0.8x = Red flag (INTC in crisis)
For a detailed explanation of how OCF/NI ratios work, see our Cash Flow Quality Framework.
Why AMD Beats NVIDIA in Cash Quality
The contrast with NVIDIA is striking. Despite NVIDIA's market dominance and spectacular growth, its 0.84x OCF/NI ratio signals working capital headwinds.
NVIDIA's Working Capital Drag
NVIDIA's AI GPU business requires massive inventory buildups:
- Blackwell GPU ramp created 137 days of inventory outstanding
- H200/H100 stockpiling to meet hyperscaler demand
- Working capital consumed $2.7B in Q3 2025 alone
This is why NVIDIA's reported $19.3B net income (Q3 FY26) only generated $16.2B in operating cash flow—giving them the 0.84x ratio.
AMD's Efficient Capital Model
In contrast, AMD's fabless business model and efficient working capital management drive superior cash conversion:
| Metric | AMD | NVDA |
|---|---|---|
| Inventory Days (DIO) | 137 days | 143 days |
| Receivables Days (DSO) | 75 days | 55 days |
| Payables Days (DPO) | 54 days | 117 days |
| Cash Conversion Cycle | 159 days | 81 days |
Wait—AMD has a longer cash conversion cycle (159 vs 81 days), yet better cash conversion ratio (1.72x vs 0.84x)? How?
The answer: AMD's profitable growth is generating enough operating cash to fund working capital buildup and still exceed reported profits. NVIDIA's hyper-growth is consuming cash faster than profits can generate it.
The Consistency Factor: 8/8 Quarters
AMD hasn't just posted a strong single quarter—it's been perfectly consistent:
- 8 out of 8 quarters of positive free cash flow (Q4 2023 through Q3 2025)
- Record Q3 FCF: $1.53B (+208% YoY)
- Net cash position: $2.7B (no financial distress)
Compare this to Intel's 1 out of 8 quarters positive FCF over the same period, and you see why AMD's cash quality stands out.
Q3 2025 Cash Flow Metrics:
- Operating Cash Flow: $4.88B (TTM)
- Free Cash Flow: $4.04B (TTM)
- FCF Margin: 13.7% of revenue
- FCF to Net Income: 1.43x
All data sourced from AMD 10-Q filed Oct 29, 2025 (Accession: 0000002488-25-000045)
What Investors Should Monitor
AMD's excellent cash quality doesn't mean it's automatically a buy—quality ≠ value. But it does confirm the earnings are trustworthy. Here's what to watch:
Early Warning Signals
Set alerts for these thresholds:
| Metric | Current Value | Warning Threshold | What It Signals |
|---|---|---|---|
| OCF/NI Ratio | 1.72x ✅ | Drops below 1.2x | Cash quality deteriorating |
| FCF Consistency | 8/8 ✅ | Falls to 7/8 or lower | Cash generation becoming unreliable |
| Cash Conversion Cycle | 159 days ⚠️ | Rises above 180 days | Working capital pressure building |
Quarterly Check-ins
After each quarterly 10-Q filing (~45 days after quarter-end):
- Recalculate OCF/NI ratio (operating cash flow ÷ net income, both TTM)
- Check FCF sign (positive or negative?)
- Track CCC trend (DSO + DIO - DPO)
If two or more metrics breach warning thresholds simultaneously, reassess AMD's earnings quality.
The Investment Implication
Wall Street's fixation on AMD's "lagging" 22% growth vs NVIDIA's 170% misses a critical insight: AMD's profitability is backed by superior cash generation.
This matters because:
- Sustainability: High OCF/NI ratios predict more sustainable earnings
- Quality signal: Low risk of accounting manipulation or aggressive revenue recognition
- Self-funding growth: AMD doesn't need external financing to fund expansion
- Valuation context: When evaluating AMD's P/E of 45x (non-GAAP), remember those earnings are 1.72x cash-backed
Quality First, Then Valuation
Our analysis confirms AMD has excellent earnings quality (Grade A based on cash flow metrics). But this doesn't answer whether AMD is cheap or expensive at current prices—that's a separate valuation question requiring:
- DCF analysis with growth assumptions
- Comparison to peer multiples (P/E, EV/EBITDA, etc.)
- Assessment of competitive positioning in AI GPUs vs CPUs
This analysis tells you AMD's earnings are trustworthy. Whether they're attractively priced is your call.
Comparison to Intel: A Cautionary Tale
Intel's -0.49x OCF/NI ratio illustrates what happens when cash quality collapses:
- Despite reporting positive net income ($1.0B in Q3 2024), Intel burned $0.49 in cash per dollar of profit
- 1 out of 8 quarters of positive FCF signals severe distress
- Working capital deterioration and restructuring charges consuming cash
This is why Intel's stock trades at depressed multiples despite "beating" on EPS—the market doesn't trust the quality of those earnings.
AMD's 1.72x ratio is the polar opposite: markets may question the growth narrative, but the quality is undeniable.
Key Takeaways
Bottom Line:
- AMD's 1.72x OCF/NI ratio is best-in-class among semiconductors
- NVIDIA's 0.84x ratio shows working capital consuming cash despite explosive growth
- Perfect 8/8 FCF consistency demonstrates AMD's cash quality is reliable, not a one-time event
- This doesn't make AMD "cheap"—but it does confirm earnings are high quality and sustainable
- Monitor quarterly: If OCF/NI drops below 1.2x or FCF consistency falls to 7/8, reassess
Verdict: AMD passes the cash quality test with flying colors. Now evaluate valuation separately.
Frequently Asked Questions
Q: What is AMD's OCF/NI ratio? A: AMD's Operating Cash Flow to Net Income ratio is 1.72x, meaning every dollar of reported profit generates $1.72 in actual cash. This is best-in-class among semiconductor companies.
Q: How does AMD's cash quality compare to NVIDIA? A: AMD's 1.72x OCF/NI ratio significantly exceeds NVIDIA's 0.84x, indicating AMD's earnings are backed by stronger cash generation despite NVIDIA's higher revenue growth.
Q: Is AMD's 1.72x OCF/NI ratio sustainable? A: AMD has demonstrated 8/8 quarters of positive free cash flow, suggesting the cash quality is consistent. Monitor for any drop below 1.2x as a warning signal.
Q: Why does AMD have better cash conversion than NVIDIA? A: NVIDIA's massive Blackwell GPU inventory buildup (137+ days DIO) is consuming working capital, while AMD's fabless model and efficient working capital management drive superior cash conversion.
Q: What is a good OCF/NI ratio? A: Above 1.2x is excellent, 1.0-1.2x is good, 0.8-1.0x is warning territory, and below 0.8x signals potential earnings quality issues.
Q: Should I buy AMD based on this analysis? A: This analysis confirms AMD has excellent earnings quality, but doesn't assess valuation. You'll need to separately evaluate if AMD's P/E ratio, growth prospects, and competitive position justify the current stock price.
Methodology & Data Sources
Primary Sources:
- AMD 10-Q Q3 2025 (Accession: 0000002488-25-000045, filed Oct 29, 2025)
- NVIDIA 10-Q Q3 FY2026 (Accession: 0001045810-25-000067, filed Nov 20, 2025)
- Intel 10-Q Q3 2024 (filed Oct 31, 2024)
- Broadcom 10-K FY2024 (filed Nov 21, 2024)
Calculation:
- OCF/NI Ratio = Operating Cash Flow (TTM) ÷ Net Income (TTM)
- TTM = Trailing Twelve Months (sum of last 4 quarters)
- All metrics calculated from consolidated financial statements
Independent Verification: All calculations are replicable using publicly available SEC EDGAR XBRL data.
Framework Reference: For detailed methodology on cash flow quality assessment, see Cash Flow Quality Framework.
Disclaimer
This analysis assesses earnings quality only, not valuation, business prospects, or investment recommendations. MetricDuck has no position in AMD, NVIDIA, Intel, or Broadcom securities and receives no compensation from any companies mentioned.
This is not investment advice. Past performance does not guarantee future results. Consult qualified financial advisors before making investment decisions.
Data Limitations: Analysis based on quarterly 10-Q filings. Some metrics only available in annual 10-K reports. See full methodology documentation for details.
Next Update: After Q4 2025 earnings (AMD expected late January 2026, NVIDIA expected late February 2026)
Want deeper analysis? Explore our Cash Flow Quality Framework or analyze any company using MetricDuck's Cash Flow Health Card.
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