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The semiconductor industry has experienced transformative growth in recent years, thanks to the increasing demand for advanced technologies - like 5G networks, self-driving cars, and the Internet of Things. Now, in 2023, the widespread adoption of artificial intelligence (AI) applications among consumers and businesses alike has driven the most explosive wave of growth yet for the semiconductor industry, as specialized chips are necessary to support AI's intense computing demands.
Semiconductor production is no longer a matter of mere investor interest; it's a matter of geopolitical interest. Governments around the world have recognized the strategic importance of semiconductors, and have announced plans to support the growth of their respective domestic industries. For instance, both the United States and the European Union have unveiled initiatives to boost semiconductor production and reduce reliance on foreign suppliers, while specialized AI chips have become yet another hot-button bullet point in the laundry list of ongoing U.S.-China tensions.
Given these recent developments, it's an exciting time to explore investment opportunities in the semiconductor sector - particularly among small-cap stocks that have the potential for a breakout in 2024. So let's look past the mega-cap players like Nvidia (NVDA) and Broadcom (AVGO) for a few minutes, because under-the-radar players Navitas Semiconductor (NVTS) is worth considering at current levels.
Priced at less than 10 bucks a share, with a $1.24 billion market cap, NVTS is a member of the small cap-focused Russell 2000 Index (RUT). Navitas stock boasts a consensus “buy" rating from Wall Street analysts, who expect major upside from this semi stock over the next 12 months.
Here's what investors need to know about the company's earnings track record, future growth plans, and how it sizes up against other small-cap semiconductor players.
NVTS Beats on Revenue Growth
California-based Navitas Semiconductor specializes in next-gen gallium nitride (GaN) integrated circuits (ICs), as well as wideband gap GaN + silicon carbide (SiC) semiconductors, which operate at optimal speeds in higher temperatures than legacy silicon chips. NVTS sees a $20 billion market opportunity here.
Navitas is not yet profitable, but the company beat on both the top and bottom line in Q3 2023. On an adjusted basis, the per-share loss narrowed to $0.04, and beat the consensus by $0.01. Quarterly revenue was also stronger than forecast, as it more than doubled year-over-year to $21.98 million. Gross margin also expanded from the year-ago period.
What Do Analysts Expect for NVTS?
NVTS has outperformed on a YTD basis - not just the small-cap RUT, but also the tech-heavy Nasdaq Composite ($NASX). Navitas stock is up more than 99% in 2023, compared to a gain of 36% for the Nasdaq. That said, the stock is still priced right around $7.00 per share.
Looking ahead, analysts are targeting narrower losses for Navitas Semi into fiscal 2024. Revenue, meanwhile, is expected to ramp up from $37.9 million in fiscal 2022 to nearly $79 million this fiscal year, with continued growth to $131.75 million in fiscal 2024.
NVTS is currently priced at 15x expected 2023 sales and 9x 2024 sales, indicating the shares do trade at a premium to some of their semi stock peers at current levels.
That said, analysts remain bullish on the shares, with quite a bit more upside expected over the next year. Out of 7 analysts, 4 shout "strong buy," 1 goes for a "moderate buy," and 2 suggest a "hold."
The mean target price is a cool $10.13, which suggests an expected 44% upside from current levels.
Should You Bet on NVTS to Break Out?
This small-cap stock might trade at a premium based on some valuation metrics, but the upside potential is compelling - and the low share price helps ease the sting, too. Plus, it's worth pointing out that Navitas stock has already corrected from its year-to-date highs, and has successfully bounced from support at $5. Against this backdrop, investors looking to speculate on potential breakout stocks in the semiconductor space should consider NVTS a compelling one to watch.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
