Nvidia stock has been in stellar form on the market over the past couple of years thanks to the proliferation of artificial intelligence (AI), as the robust demand for the company's graphics cards that are deployed in data centers has led to outstanding growth in its revenue and earnings.
Nvidia's dominant position in the AI chip market explains why its shares have shot up a whopping 1,000% in the past two years. The good part is that Nvidia seems to be in a solid position to sustain its AI-powered growth, driven by the arrival of a new generation of chips that are likely to help it extend its technological lead over rivals.
But at the same time, investors should note that there are other AI chip stocks that are taking advantage of the growing adoption of AI in other areas. Cirrus Logic (CRUS 0.17%) is one such company. Known for supplying smartphone chips to Apple (AAPL 2.59%), Cirrus stock stitched impressive gains of 43% so far in 2024.
NASDAQ: CRUS
Key Data Points
The company is set to release its fiscal 2025 second-quarter earnings on Nov. 4, and there is a good chance that its rally could get a nice boost. Let's look at the reasons why.
Cirrus Logic is likely to get support from its largest customer
Apple has a massive influence on Cirrus Logic's business. That's because the tech giant accounts for 88% of Cirrus' top line. More specifically, Apple taps Cirrus for the latter's audio chips and power amplifier chips. For instance, Apple's latest iPhone 16 lineup boasts a number of chips from Cirrus Logic.
A teardown of the iPhone 16 Pro suggests that Cirrus is supplying three audio chips and one power management module to Apple. The plain iPhone 16 models, on the other hand, have at least three Cirrus Logic audio chips in them. Now, reliance on a single customer for such a big chunk of the business isn't ideal, as Cirrus' business could come crashing down if Apple decides to build chips in-house or moves to a different supplier.
However, both companies have been in a tight relationship for a very long time. More importantly, Cirrus has been gaining more business from Apple, as it was earlier known for supplying only audio chips to the iPhone maker. Cirrus' diversification beyond its core audio market into high-performance mixed-signal offerings such as camera controllers, haptics, and power management tools allowed it to win more business with its largest client.
KeyBanc analysts believe that Cirrus could also supply camera parts to Apple for its latest iPhone generation, while the addition of the new camera control button suggests that 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 lineup seems to have gotten off to a nice start as far as sales are concerned.
Market research firm Counterpoint Research points out that the new Apple smartphones witnessed a 20% bump in sales in the first three weeks as compared to last year's iPhone 15 lineup. On the other hand, Canalys estimates that Apple's sales in the third quarter of calendar 2024 have hit a record high volume, with the iPhone maker reportedly reaching the top spot in the global smartphone market share.
More importantly, Apple's generative AI-enabled smartphone lineup should ideally unlock a tremendous long-term growth opportunity for the company because of a massive installed base of users that are using older iPhones. As a result, Cirrus seems on track to benefit from a combination of higher unit volumes as well as more revenue from each iPhone that's manufactured.
These are the reasons why it won't be surprising to see Cirrus beat Wall Street's expectations when it releases its next set of results.
The company is growing at a healthy pace and trades at an attractive valuation
Cirrus Logic's fiscal 2025 got off to a strong start as it reported an 18% year-over-year increase in revenue in the first quarter to $374 million. The bottom-line growth was even more impressive as Cirrus' earnings increased to $1.12 per share from $0.67 per share in the prior-year period.
Cirrus guided for $520 million in fiscal Q2 revenue at the midpoint of its guidance range of $490 million to $550 million. At the midpoint, that would translate into a year-over-year jump of just 8%. However, don't be surprised to see Cirrus easily beating its own guidance range, especially considering that another key Apple supplier recently reported terrific results that bettered Wall Street's expectations and also raised its full-year guidance.
That's why investors looking to buy a semiconductor stock right now can consider buying Cirrus Logic before it releases its earnings report on Nov. 4 as it is currently trading at just 23 times trailing earnings, which is quite cheap when we consider the outstanding earnings growth it delivered the last time and the potentially strong earnings report that it is likely to deliver in a couple of weeks.
