Small-cap chipmaker Navitas Semiconductor (NVTS +2.53%) has been on a wild ride this year. The company began the year as a modest designer of gallium nitride (GaN) chips mainly targeting the mobile phone charger market. However, things changed dramatically after Nvidia named Navitas as one of the partner companies that may help co-design its next-generation 800-volt DC artificial intelligence (AI) factory architecture.
That disclosure caused the stock to skyrocket, which in turn enabled Navitas to raise about $100 million through equity offerings. Flash forward six months, and Navitas followed the early-year raise with another $100 million offering last week.
The company then replaced its CEO this past summer in order to mount a large pivot and complete strategy change to the new AI opportunity.
Here's what new management has to say about the transition, and why Navitas should be a very different company three years from now.
NASDAQ: NVTS
Key Data Points
Shedding the old, targeting the new
Navitas announced on its recent earnings call that it will intentionally back away from its traditional customer base, mainly in Chinese mobile phones and phone chargers, and focus solely on the data center market, as well as the electrical infrastructure market that will power it.
Navitas already has a long history of innovating with GaN, and in 2022 it acquired GeneSiC, giving the company expertise in silicon carbide (SiC) chips as well.
These compound semiconductors are somewhat difficult to innovate and design, but are more efficient and rugged than traditional silicon. That makes each especially useful in applications where there is high voltage and temperature concerns. While these have tended to be battery-oriented applications such as mobile phone chargers, electric vehicle (EV) charging and electrical infrastructure, power-hungry AI chips are setting new records for voltage and are thus now requiring these kinds of power chips at the rack, system, and electric grid levels.
According to Navitas management, GaN is now a "mainstream" material for AI data centers, while silicon carbide is needed for the highest-voltage applications in grid infrastructure, power conversion, and transmission.
New CEO Chris Allexandre said on the recent conference call with analysts:
This is not a short cycle. It is a durable, multi-decade sustainable trend that will reshape power architecture at rack, system and grid type levels. This requires fundamental change in customer system architecture, design and technologies and simply means the total market size Navitas is addressing has increased multiple folds. It opens immense opportunity for high-power players such as Navitas 2.0.
The new leader to pave Navitas 2.0
With the new strategy in mind, Navitas brought in Chris Allexandre as its new CEO this past summer. Allexandre has extensive experience at larger power semiconductor companies, with his most recent position at Japanese giant Renesas, where he was senior vice president and general manager of its power division since October 2023, and chief sales and marketing officer from 2019 to 2023.
Prior to Renesas, Allexandre was an executive at Integrated Device Technology, which was later acquired by Renesas, and before that NXP Semiconductors, Fairchild Semiconductor, and Texas Instruments.
On the recent conference call, Allexandre's first as CEO, he described a 60-day tour to start his tenure meeting customers, employees, suppliers and partners. His commentary reflected optimism over the opportunity ahead.
The conclusion is straightforward. Navitas is a company with enormous potential, underpinned by strong foundational elements already in place in both GaN and high-voltage SiC. And we have a tremendous opportunity to win in high-power, high-growth markets such as AI data centers, performance computing, energy and grid infrastructure and industrial electrification. Customers are eager to adopt those technologies into their application, and we have the experience and track record of delivering those technologies in scale and volume, and they want to collaborate.
Image source: Getty Images.
But the transition won't be easy or predictable
While these words lent optimism to the long term, the short term will be painful. In the third quarter, Navitas' revenue came in at just $10 million, while management guided to just $7 million in revenue in the fourth quarter. That stands in contrast to the hypergrowth of the AI data center market.
Allexandre did his best to allay shareholder concerns, predicting that the fourth quarter reflects a deliberate walking away from some revenue. From there, Allexandre said that revenue and margins should improve through 2026, and that AI data center revenue and profits should begin to hit in 2027, as design wins begin to flow through at that time.
Navitas could look very different three years from now, but it's hard to quantify
It should be noted Allexandre didn't outline long-term revenue or profit targets for 2027 or 2028 on the other side of this transition. That's likely because there is a lot of uncertainty as to how the transition will play out.
After all, Navitas isn't the only company in the GaN and SiC chip business, though it does have many years of experience. Therefore, it will still need to grab more design wins into 2026 to achieve its goals.
Navitas is burning about $10 million to $11 million per quarter right now in this low part of the transition, but it did have about $150 million in cash at the end of Q3, and just raised another $100 million, giving the company about $250 million in cash as of now. So, the new CEO will have some freedom to invest toward these new end markets and opportunities.
Still, investors may want to take a wait-and-see approach here. Navitas has roughly a $2 billion market cap, or $1.75 billion enterprise value, and it's really not clear as to what its earnings power will be in the next few years. Today's stock price could end up looking like a great bargain if Allexandre and his team execute, but investors won't have a good handle on that until new design wins are won and quantified.
