Is This Little-Known Chip Stock an Even Better AI Buy Than Nvidia?

While Nvidia (NVDA) is leading the artificial intelligence (AI) race, several other chip stocks are flying under the radar. With a market capitalization of more than $3 trillion, Nvidia is already among the largest companies in the world and may have limited upside potential. 

One AI chip stock that can outpace Nvidia is Ibiden (IBIDY), a Japanese manufacturer specializing in electronic components and ceramic products. Its core business includes producing IC package substrates for data centers and computers, printed circuit boards for smartphones and automotive applications, and various ceramic components for vehicle exhaust systems, including diesel particulate filters and catalyst substrates. 

Ibiden also manufactures high-temperature insulating materials, graphite products, and decorative laminates. Founded in 1912 as Ibigawa Electric Power, it rebranded to Ibiden in 1982 and now operates globally across Asia, North America, and Europe. 

Is the AI Chip Stock a Good Buy Right Now?

According to a Bloomberg report, Ibiden is under pressure to accelerate its production capacity expansion due to overwhelming demand. The company is constructing a new factory in Japan's Gifu prefecture, which will operate at 25% capacity by late 2025 and 50% by March 2026. However, customers are already requesting further expansion plans. In a Bloomberg interview, Ibiden CEO Koji Kawashima emphasized that strong demand for its products is expected to continue through at least 2025. 

Ibiden supplies substrates to major tech firms, including Intel (INTC), Advanced Micro Devices (AMD), Samsung, and Taiwan Semiconductor (TSM), as it focuses on collaborating in the early stage product development process.

Chip giant Intel previously accounted for a sizeable portion (over 70%) of Ibiden’s substrate revenue. However, its reduced reliance on Intel has hampered top-line growth in recent years. Notably, its sales stood at 370.5 billion yen for fiscal 2023, down from 417.5 billion yen in fiscal 2022. 

Ibiden currently dominates the market for Nvidia's AI chip substrates, with competitors like Unimicron Technology struggling to match its production capabilities. AI semiconductors currently account for over 15% of Ibiden sales and are expected to drive future growth. 

Is the Tech Stock Undervalued?

From its humble beginnings as a power utility company 112 years ago, Ibiden has become a critical player in the AI chip revolution. The Japanese manufacturer currently dominates the market for sophisticated chip package substrates used in AI semiconductors and is a key supplier to several tech giants. 

Analysts tracking the tech stock expect sales to rise by 70.91% year over year to $2.5 billion in fiscal 2025 and by 13.6% to $2.73 billion in fiscal 2026. While Ibiden is part of a cyclical sector, it has expanded its profit margins over the years. For instance, its gross margins have improved to 30.1% in the past year, up from 25.4% in fiscal 2015. Moreover, its operating margin has almost doubled to 14.3% in this period. 

According to estimates, Ibiden is forecast to invest over $1.1 billion in capital expenditures in fiscal 2025 to boost its production capacity, which should translate to higher earnings and cash flow in the future.