Nvidia The stock has been in the market for the past several years due to the growth of artificial intelligence (AI), as the strong demand for enterprise graphics cards installed in data centers has led to an extraordinary growth in revenue and earnings.
Nvidia’s dominant position in the AI ​​chip market explains why its stock has risen 1,000% in the past two years. The bright side is that Nvidia seems to be in a strong position to support AI-powered growth, driven by the arrival of a new generation of chips that could help 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(NASDAQ: CRUS) is one such company. Known for supplying smartphone chips for Apple(NASDAQ: AAPL)Cirrus shares are up 43% year to date in 2024.
The company is set to release its fiscal 2025 second-quarter earnings on Nov. 4, and there’s a good chance the rally could get a good boost. Let’s see why.
Apple has a huge impact on Cirrus Logic’s business. That’s because the tech giant accounts for 88% of Cirrus’ top line. More specifically, Apple tapped Cirrus for its audio chips and power amplifier chips. For example, Apple’s latest iPhone 16 lineup has some chips from Cirrus Logic.
A teardown of the iPhone 16 Pro reveals that Cirrus supplied three audio chips and one power management module to Apple. The plain iPhone 16 model, on the other hand, has at least three Cirrus Logic audio chips. Currently, reliance on one customer for a large part of the business is not ideal, as Cirrus’ business could collapse if Apple decides to make its chips in-house or move to another supplier.
However, the two companies have been in a tight relationship for a very long time. More importantly, Cirrus has gained more business from Apple, as it was previously known only to supply 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 has allowed it to win more business with its largest clients.
KeyBanc analysts believe that Cirrus may also supply camera parts to Apple for the latest generation of iPhones, while the addition of a new camera control button suggests that the chipmaker may also supply haptic drivers to its biggest customers. The good news for Cirrus Logic investors is that Apple’s iPhone 16 lineup seems to be off to a good start in terms of sales.
Market research firm Counterpoint Research showed that new Apple smartphones witnessed sales of 20% in the first three weeks compared to last year’s iPhone 15 lineup. On the other hand, Canalys estimates that Apple’s sales in the third quarter of the 2024 calendar year have reached a record high volume, with the iPhone maker reportedly reaching the top spot in the global smartphone market share.
More importantly, Apple’s AI-enabled generative smartphone lineup should ideally unlock tremendous long-term growth opportunities for the company given its massive user base that uses older iPhones. As a result, Cirrus appears on track to benefit from a combination of higher unit volume as well as more revenue from each iPhone it produces.
This is the reason why it should come as no surprise that Cirrus beat Wall Street’s expectations when it released its next results.
Cirrus Logic’s fiscal 2025 got off to a flying start as it reported an 18% year-over-year revenue increase in the first quarter to $374 million. The underlying growth was even more impressive as Cirrus’ earnings rose to $1.12 per share from $0.67 per share in the year-ago period.
Cirrus guided for $520 million in fiscal Q2 revenue at the midpoint of a 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 beat some of its own guidance, especially considering that another key Apple supplier recently reported excellent results that beat Wall Street expectations and also raised their full-year guidance.
That’s why investors who want to buy semiconductor stocks now can consider buying Cirrus Logic before it releases its earnings report on November 4th because it is currently trading at only 23 times trailing earnings, which is quite cheap if we consider its extraordinary earnings growth. posted last time and a potentially strong earnings report that is likely to post in a few weeks.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Apple and Nvidia. The Motley Fool recommends Cirrus Logic. The Motley Fool has a disclosure policy.
1 Amazing Semiconductor Stock That Could Start Soaring After November 4th (Hint: It’s Not Nvidia) was originally published by The Motley Fool
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