Freakin' Business Brief and Fresh Perspective
Navitas Semiconductor's Norm is Lengthy Explanations, Yet for This Instance, Exceptions Are Made
Hey there! Let's dive into the lowdown on Navitas Semiconductor Corporation (NVTS), a company that's all about making power chips using fancy stuff like gallium nitride (GaN) and silicon carbide (SiC). These babies offer better efficiency, smaller size, and faster charging compared to traditional silicon-based power chips, which are essential for handling electricity flow in electronic systems. Navitas was founded on technology for fast phone charging and now aims to take on AI data centers, solar energy storage, and electric vehicles (EVs).
NVTS stock skyrocketed over 380% following news of a collaboration with powerhouse NVIDIA (NVDA) on a future, high-voltage DC power architecture for AI factory systems. But is this move something to get excited about, or just another hyped-up stock play? Let's take a look!
The Dish: A Cynical Take on Navitas
After considering the facts, it's fair to say I'm bearish on NVTS. Here are the reasons why:
- Navitas' track record on execution is iffy, and their future looks gloomy due to a lack of a competitive moat.
- They're bleeding cash and have a short liquidity runway.
- Their business model is shaky, with high customer concentration and signs of churn.
- Insiders have been dumping stock, which is a red flag.
- Valuations are high.
- NVTS has strong bullish momentum, but it's at a key resistance level.
- Risks and short view considerations should be well-considered.
Navitas' Execution Track Record Is Iffy, and Their Future Lacks Promise Due to a Lack of a Moat
In a Corporate Update in late Feb'25, Navitas hyped up their future revenue prospects and touted a $2.4 billion customer pipeline. But beware, because a "customer pipeline" doesn't have a solid meaning like a backlog of contracted orders, and it's hard to determine how Navitas classifies something as worthy of being in their pipeline. Instead, we should focus on their actual financials.
The numbers show a shrinking business for Navitas. Management attributes this to inventory related slowdowns in end markets, such as EVs, solar, and industry. But this narrative is unusual for a semiconductor company, as most in the sector are talking about excess demand, not slowdowns. Additionally, most of Navitas' revenues (43%) come from China, which isn't ideal due to its susceptibility to trade uncertainties in the current geopolitical climate.
Navitas has also missed revenue guidance repeatedly vs consensus estimates. The Q2 FY25 guidance is tepid, and they claim weak end markets are to blame. However, they do hint at growth later this year and in FY26. But with increased competition from larger players like STMicroelectronics, Infineon, and Renesas, who have better supply assurances and automotive qualifications, it's unclear if Navitas will be able to capture any significant opportunities in the gallium nitride market.
Navitas Is Bleeding Cash and Has a Short Liquidity Runway
NVTS is currently loss-making and bleeds around $14 million per quarter. They have a total liquidity of $75 million right now, which means they'd run out of cash in 5-6 quarters if they keep burning through cash at the same rate.
Navitas Has a Shaky Business Model with High Customer Concentration and Signs of Churn
Navitas also has a shaky business model due to high customer concentration. As of Q1 FY25, a single distributor made up 51% of total net revenues. Worse, history shows at least one instance of an abrupt stop in business even with a major distributor that made up 56% of total revenues. This worrying sign of churn risk compounds the high customer concentration concerns.
Insiders Have Been Dumping Stock, Which is Another Red Flag
Insiders have been aggressively selling their Navitas stock, capitalizing on the euphoria following the NVIDIA collaboration announcement. This, my friends, is another warning sign of a potentially overhyped stock.
Valuations Are High and the Recent Price Rally in NVTS Stock Smells Unsustainably Frothy
NVTS is trading at a 1-yr fwd EV/Revenue of 19.1x, a massive 132% premium to its longer-term median level of 8.2x. The recent price rally in NVTS stock has also made it the most expensive compared to a handful of semiconductor peers with no changes in the commercials of the business (tangible revenues or contracts won).
Final Verdict: A 'Strong Sell'
In conclusion, I believe the Navitas collaboration with NVIDIA could be great for a short. Their weak execution track record, a lack of competitive moat, financial challenges, high customer concentration, and overhyped valuations make NVTS a company to be wary of. Hence, I'm rating it a 'Strong Sell'.
- In light of Navitas' financial struggles and high valuation, cautious investors might want to consider other opportunities for investing in the technology sector, potentially exploring companies in the finance industry that show promise in areas like AI or renewable energy.
- Despite the collaboration with NVIDIA, investors should be aware of the risks associated with Navitas Semiconductor Corporation (NVTS), including its questionable execution track record, lack of a competitive moat, cash flow issues, high customer concentration, and insider stock selling, which may make it less appealing for long-term investments compared to other companies in the stock-market, especially those in the business sector demonstrating more stable financials and growth potential.
