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The rapid adoption of artificial intelligence (AI) technology helped to propel the stocks of specialized AI chipmakers well beyond the performance of the broader market in 2023. The VanEck Semiconductor ETF (SMH) registered a remarkable 72.4% gain on the year, significantly outperforming both the S&P 500 Index ($SPX) and the Nasdaq Composite ($NASX). This standout price action underlines these companies' pivotal role in the unfolding AI revolution.
Amid all of the frenzy around mega-cap AI chip stocks like Nvidia (NVDA) and Broadcom (AVGO), there's one semiconductor stock trading under $10 per share that may have slipped under investors' radar in 2023, despite its massive rally. Here's a look at 3 reasons why this stock is still a strong buy for 2024.
About Navitas
Founded in 2014, California-based Navitas Semiconductor (NVTS) is a pure-play, next-generation power semiconductor company, focusing on revolutionizing power electronics with two of its leading products, GaNFast and GeneSiC.
NVTS has a market cap of $1.48 billion, placing it firmly in small-cap territory. In fact, NVTS is a member of the small-cap focused Russell 2000 Index (RUT), where it was one of the top 100 performers in 2023.
Notably, the company's revenues have witnessed a jaw-dropping growth rate of 2,129% from 2019 to 2022 - and it seems the company's rapid-fire growth is projected to continue.
The company's products continue to gain adoption among its end-users. A case in point is the increasing use of GaN in the mobile chargers of Chinese OEMs like Xiaomi and OPPO. Notably, the company expects 30% of their mobile charger shipments in 2024 will use GaN, hinting at a greater shift towards this technology, where Navitas has gained particular expertise. Moreover, smartphone giant Samsung recently adopted GaN chips for its Galaxy S23 model.
Navitas is also well-poised to benefit from the boom in AI adoption and the increasing prevalence of data centers. Navitas' system design center has a new 4.5-kilowatt AC to DC platform design which provides improved power density than some of the best-in-class silicon designs along with energy efficiency.
Also, Navitas' EV system design center has just finished the development of a 6.6 kilowatt, 800-volt onboard charger platform that is expected to set all new industry benchmarks in system efficiency, density and cost with significant customer interest already being seen in the platform.
Finally, Navitas is also not cutting corners in terms of capacity expansion. With the added advantage of an asset-light strategy due to its fabless business model, the company has guaranteed a capacity expansion with X-FAB to increase capacity for silicon carbide five times that of 2022 levels, while it is also expanding its GaN capacity with Taiwan Semiconductor (TSM).
1. Standout Price Action
While semi stocks outperformed as a group in 2023, NVTS fared even better. Navitas stock rallied 129% in 2023, putting the broader industry and the tech sector as a whole to shame with its standout price action.
That said, the shares are down 27.6% from their 52-week highs, which means it's still possible to buy this outperformer on the dip.
2. Solid Earnings with More Growth Projected
In Q3 2023, Navitas more than doubled its revenues to about $22 million from $10.2 million in the previous year. The management cited the sustained demand for its gallium nitride and silicon carbide technologies as the primary drivers for its solid results.
NVTS reported an adjusted loss of $0.04 per share for the period, much narrower than a loss of $0.24 per share in the previous year, and better than the consensus estimate for a loss per share of $0.05. Over the past five quarters, Navitas has consistently surpassed bottom-line estimates.
During the quarter, Navitas launched GaNSafe, unlocking its potential for newer markets such as AI data centers, solar inverters, and EV powertrains. By boosting reliability, shrinking size, maximizing efficiency, and accelerating charging, GaNSafe empowers these industries to achieve higher performance and lower costs.
The company is debt-free, and closed the quarter with a cash balance of $176.7 million, up from $110.3 million at the start of the year.
3. Analysts Cautiously Optimistic
Looking ahead, analysts are targeting 36% bottom-line improvement for NVTS in fiscal 2024, along with roughly 67% revenue growth.
Overall, Wall Street is optimistic on NVTS, which has an average “Moderate Buy” rating with a mean target price of $10.13. This denotes an expected upside potential of about 25.5% from current levels.
Out of 7 analysts covering the stock, 4 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 2 have a “Hold” rating.
