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Why Rambus, Inc. Shares Soared

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Rambus, Inc.  (NASDAQ: RMBS  ) skyrocketed nearly 24% during intraday trading Tuesday after the tech licensing company announced it has settled legal disputes and signed an agreement with Micron Technology (NASDAQ: MU  ) .

Shares of Micron are trading relatively flat on the day.

So what: The two companies have signed a broad patent license agreement under which Micron will pay Rambus as much as $10 million per quarter for the next seven years. The deal also stipulates a rolling 12-month cap fixed at $40 million, good for a potential total of $280 million. After the initial seven-year term, Micron will also have the option to extend the license agreement for additional renewal periods under the same terms.

Now what: This is a huge win for Rambus investors, who can look forward to an end to one of the company's most significant, years' long, undoubtedly expensive legal battles revolving around the use of its intellectual property. What's more, this should also go a long way toward setting a favorable precedent for future licensing deals.

As a result, and even with shares having doubled so far this year, I think Rambus stock at today's levels could still prove a bargain for patient long-term investors.

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Related Tickers

9/30/2016 4:00 PM
MU $17.78 Up +0.24 +1.37%
Micron Technology CAPS Rating: ***
RMBS $12.50 Up +0.11 +0.89%
Rambus CAPS Rating: **