Best known for supplying audio chips to Apple, chipmaker Cirrus Logic's (NASDAQ:CRUS) stock has shot up remarkably in 2019 despite a couple of terrible quarterly reports.

Weak iPhone demand weighed heavily on Cirrus Logic earlier this year, as the company relies on Apple for a big chunk of its revenue. The story was repeated once again this month when Cirrus released its fiscal fourth-quarter results, revealing a massive drop in the top and bottom lines.

But all of that hasn't dented investor confidence in Cirrus stock, with shares up roughly 45% year to date as of this writing. Investors seem to like that the company has finally started pulling the right strings to diversify its business.

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What's driving Cirrus stock higher?

Apple supplied 66% of Cirrus' revenue last quarter. That's a sharp decline in Apple-driven revenue, as Cupertino had accounted for 83% and 82% of the total revenue in the preceding two quarters. On a year-over-year basis, Cirrus' reliance on Apple dropped by a whopping 13 percentage points.

The following chart shows how sharply Cirrus has managed to reduce its reliance on Cupertino.

Chart showing Cirrus' reliance on Apple for revenue.

Data source: Cirrus Logic's quarterly reports, Chart by author.

The good news for investors is that even though Cirrus' revenue fell nearly 21% annually during the fourth quarter, that was a massive improvement over the 33% year-over-year drop the company had witnessed during the third quarter. Looking ahead, Cirrus expects its top-line erosion to slow further: Revenue is expected to decline around 13% at the midpoint of its guidance range for the current quarter.

So there's concrete proof that Cirrus will able to emerge from Apple's shadow, which is driving up investor confidence in the stock. The company expects that its business will continue turning around in the current fiscal year as demand for new products grows and new customers come into its fold. Analysts expect Cirrus' top line to drop in the mid-single digits for fiscal 2020 (the current fiscal year) and remain flat year over year in fiscal 2021.

Does the situation justify Cirrus stock's impressive rally?

Cirrus isn't doing enough just yet

While it cannot be denied that Cirrus seems to be turning around, it is still early days. After Apple, Cirrus' next biggest customer supplies 15% of its revenue. Though that customer is an Android smartphone OEM (original equipment manufacturer) and underscores the progress made by Cirrus toward diversifying its customer base, that's still a lot of reliance on one customer.

Of course, investors can take heart from the fact that Cirrus' components are shipping in products from six of the top 10 smartphone OEMs, four of which are from China. But that doesn't guarantee a sustained turnaround given the pall of gloom over the smartphone space.

Global smartphone shipments were down 4.9% in 2018, according to IDC estimates. The situation has worsened this year, as smartphone shipments in the first quarter fell 6.6%. So there's a chance that Cirrus' diversification efforts into Android smartphones will hit a wall because of the end-market weakness.

The chipmaker is trying to move into other verticals as well, such as smart audio accessories, and plans for several new products to hit the market over the next 12 to 18 months. But bidding the stock up before the actual arrival of such products means that any potential good news is already priced in.

In fact, Cirrus is now trading at a rich trailing price-to-earnings (P/E) ratio of over 33, which is well above the industry average of 20. The company's earnings are expected to decline this year, and if Cirrus' new products don't deliver as expected, its stock could come crashing down.

This is why investors should wait for an actual turnaround at Cirrus Logic -- one where its revenue and earnings start moving in the right direction -- before going long.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.