While Nvidia has turned out to be a top semiconductor play in 2023 thanks to the company's dominant position in the market for artificial intelligence (AI) chips, with the stock jumping an eye-popping 200% so far this year, there is one area where the company has struggled to gain traction.
Nvidia's automotive business hasn't been able to shift into top gear yet despite the company's large customer base in this niche and the growing demand for automotive semiconductor solutions to power applications such as advanced driver assistance systems (ADAS), connected car applications, and virtual cockpits.
For instance, Nvidia's automotive revenue in the second quarter of fiscal 2024 (which ended on July 30, 2023) increased 15% over the prior-year period to $253 million. It is also worth noting that the segment's revenue fell 15% sequentially on account of "lower overall automotive demand, particularly in China." However, there is one pure-play automotive semiconductor company that has been growing at a much faster pace than Nvidia's automotive business -- Indie Semiconductor (INDI 2.38%).
Shares of Indie Semiconductor jumped an impressive 18% on Oct. 16 after the company released its preliminary revenue figure for the third quarter of 2023. Let's see why that was the case, and why investors would do well to buy Indie stock before it steps on the gas.
Indie Semiconductor is growing at a red-hot pace
Indie expects Q3 revenue to land above $60 million, which means that it is likely to deliver a year-over-year jump of more than 100% compared to the prior-year period's revenue of $30 million. It was earlier anticipating its revenue to double on a year-over-year basis, so its top line is set to grow at a slightly faster pace than it was originally expecting.
The California-based chipmaker, which provides semiconductor solutions for the automotive industry, has been growing at a terrific pace as its offerings address fast-growing areas such as ADAS, autonomous vehicles, in-car entertainment, and electric vehicles. Its revenue in the first six months of 2023 has almost doubled year over year to $92.5 million, and its Q3 performance indicates that the trend is set to continue.
Moreover, Indie's Q3 revenue suggests that the company has hit an annual revenue run rate of $240 million. For comparison, the company finished 2022 with a top line of $111 million. It is worth noting that analysts are anticipating the company to exit 2023 with a top line of $226 million, which would translate into 104% growth over the prior year. Even better, Indie Semiconductor is projected to sustain solid levels of growth for the next couple of years as well.
INDI Revenue Estimates for Current Fiscal Year data by YCharts
The above chart indicates that Indie's revenue is on track to grow nearly fivefold within a space of just three years from 2022 levels. That's not surprising, as the company has built a solid ecosystem of automotive customers that includes the likes of BMW, Mercedes-Benz, Volvo, Ford, Hyundai, and BYD, among many others.
More importantly, the automotive niches that Indie serves are growing at a faster pace than the overall automotive semiconductor market. The company points out that the overall automotive semiconductor market could be worth $81 billion in 2028, which would be nearly double 2021's size of $41 billion. On the other hand, Indie's addressable market is expected to hit $56 billion in 2028, up 143% from 2021 levels.
Indie Semiconductor seems to have built a solid future pipeline already. The company estimates that it was sitting on a strategic backlog worth $4.3 billion at the end of 2022. According to Indie, the strategic backlog is "an estimate of the revenue we expect to recognize from product orders over the next ten years." It wouldn't be surprising to see this metric grow further as the size of its serviceable market improves further.
Indie is a no-brainer buy
Indie Semiconductor stock is trading at just 4.9 times sales, which is significantly cheaper than Nvidia's price-to-sales (P/S) ratio of 35. Of course, this is not an apples-to-apples comparison, as Nvidia is a much bigger company with multiple growth drivers, one of which is the automotive business. Indie, on the other hand, is a semiconductor company that's exclusively focused on automotive.
However, Indie's pure-play nature has allowed it to carve a niche for itself in the automotive semiconductor market, and that's evident from the company's impressive growth and nice backlog. Even better, Indie is outperforming Nvidia's automotive business. Also, the stock seems to be attractively valued considering the eye-popping pace of growth.
Assuming it does hit $524 million in revenue in 2025 and maintains a P/S ratio of 4 at that time, its market cap could jump to almost $2.1 billion. That points toward a 135% jump from current levels within three years. That's why investors looking for a cheaper semiconductor stock than Nvidia that's growing at a breathtaking pace may want to buy Indie before it starts soaring and becomes expensive.
