Nvidia shares have been in great shape in the market in recent years thanks to the proliferation of artificial intelligence (AI), as robust demand for the company’s graphics cards deployed in data centers has led to excellent sales and revenue growth.
Nvidia’s dominant position in the AI chip market explains why its shares have risen by as much as 1,000% over the past two years. The good part is that Nvidia appears to be in a solid position to continue its AI-powered growth, driven by the arrival of a new generation of chips that will likely help the company expand its technological lead over its competitors.
But at the same time, investors should note that there are other AI chip stocks that are benefiting from the growing adoption of AI in other areas. Cirrus logic(NASDAQ: CRUS) is such a company. Known for supplying smartphone chips to Apple(NASDAQ: AAPL)Cirrus shares have posted an impressive 43% gain so far in 2024.
The company will announce its second-quarter fiscal 2025 results on November 4, and there’s a good chance the rally will get a nice boost. Let’s look at the reasons why.
Apple has enormous influence on Cirrus Logic’s activities. That’s because the technology giant accounts for 88% of Cirrus’ turnover. More specifically, Apple uses Cirrus for its audio chips and power amplifier chips. For example, Apple’s latest iPhone 16 series features a number of chips from Cirrus Logic.
A teardown of the iPhone 16 Pro shows that Cirrus supplies three audio chips and one power management module to Apple. The regular iPhone 16 models, on the other hand, have at least three Cirrus Logic audio chips. Now, depending on a single customer for so much of the business isn’t ideal, because Cirrus’ business could collapse if Apple decides to start building its own chips or moves to another supplier.
However, both companies have had a close relationship for a long time. More importantly, Cirrus has been able to win more and more revenue from Apple, as the company was previously known for supplying only audio chips to the iPhone maker. Cirrus’ diversification beyond its core audio market into high-end mixed-signal offerings such as camera controllers, haptics and power management tools helped the company win more business from its largest customer.
KeyBanc analysts believe Cirrus could also supply camera parts to Apple for its latest iPhone generation, while the addition of the new camera control button suggests the chipmaker could also supply the haptics driver to its largest customer. The good news for Cirrus Logic investors is that Apple’s iPhone 16 series appears to be off to a good start in terms of sales.
Market research firm Counterpoint Research points out that the new Apple smartphones saw a 20% increase in sales in the first three weeks compared to last year’s iPhone 15 range. On the other hand, Canalys estimates that Apple’s sales have reached record volumes in the third quarter of calendar 2024, with the iPhone maker reportedly taking the top spot in global smartphone market share.
More importantly, Apple’s generative AI-based smartphone offering should ideally present a huge growth opportunity for the company in the long term, due to a huge number of installed users using older iPhones. As a result, Cirrus appears on track to benefit from a combination of higher volumes and more revenue from each iPhone produced.
Here are the reasons why it won’t be surprising that Cirrus exceeds Wall Street expectations when it announces its next set of results.
Cirrus Logic’s fiscal year 2025 got off to a strong start as it reported an 18% year-over-year revenue increase to $374 million in the first quarter. The net growth was even more impressive as Cirrus’ earnings rose from $0.67 per share to $1.12 per share in the same period last year.
Cirrus targeted second-quarter revenue of $520 million, midway between its guidance range of $490 million and $550 million. At the midpoint, that would translate to a year-over-year increase of just 8%. However, don’t be surprised if Cirrus easily exceeds its own expectations, especially considering that another key Apple supplier recently reported stellar results that exceeded Wall Street expectations and also raised its full-year expectations.
That’s why investors looking to buy a semiconductor stock now might want to consider buying Cirrus Logic before it releases its earnings report on November 4, as it currently trades at just 23 times trailing earnings, which is quite cheap considering its excellent profit growth it brings. last time and the potentially strong earnings numbers it will likely deliver in a few weeks.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool recommends Cirrus Logic. The Motley Fool has a disclosure policy.
1 Incredibly Cheap Semiconductor Stocks That Could Start Rising After November 4 (Hint: It’s Not Nvidia) was originally published by The Motley Fool
