2022 has been a rough year for the semiconductor space. Supply chain issues, macroeconomic challenges, a crypto winter, and slowing demand has translated to significant corrections in some of the industry’s leaders, such as
Nvidia
NVDA
and
Advanced Micro Devices
AMD
.
While many popular semiconductor stocks have lagged, two under-the-radar companies have drastically outperformed. Today we will take a deeper dive into these companies.
Impinj
PI
Imagine that you’ve endured a delayed flight, you are feeling jet lagged, and all you want to do is get your luggage, go home, and get some rest. As soon as your disastrous flight lands, you hurry to deplane and walk to the baggage claim to retrieve your belongings. You secure a central waiting position near where the bags come out and breathe a sigh of relief when you hear the familiar warning buzzer of the conveyor belt, signaling that your bag should be coming out soon. It’s almost time to go home. Suitcases start to whizz by, and your fellow passengers begin to claim their bags. Twenty minutes pass, then a half hour, then one hour…your bag is nowhere to be found. Finally, you begin to get frustrated and double-check that you are indeed at the correct baggage claim. After confirming that you are, you return to your baggage claim, only to realize that there are no more bags circling on the conveyor belt. Your heart sinks.
An Ingenious Solution to a Common Problem
Have you ever had your luggage misplaced, lost, or stolen by an airline? Speaking from personal history, it is not a fun experience. You’re not alone if a lost luggage incident has happened to you. Nearly 25 million bags are mishandled each year, costing the airline industry more than $2 billion annually. Often, the best ideas originate from solutions to common problems, such as misplaced items.
Impinj (PI)
is a Seattle-based semiconductor company known for its radio frequency solutions that help to identify, locate, and authenticate common items. Rain RFID (Radio Frequency Identification Device), the company’s flagship product, uses a microscopic tracking device that is orders of magnitude smaller than a dime to monitor ordinary items wirelessly. Air transport juggernaut
Delta Airlines
DAL
is among Impinj’s most prominent customers. Delta uses Impinj’s RFID tags which cost less than a nickel each, to track customer bags. In 2016, Delta shelled out nearly $100 million to create software to track luggage via tags outfitted with Impinj microchips and build out a mobile-friendly app for customers. The bet has paid off. The result is that since launching Impinj’s RFID technology, mishandled baggage has decreased by 25%, and in 2018, Delta was named one of the top 10 most innovative travel companies by Fast Company.
Small Chips Offer Massive Growth Potential
Impinj’s
Price-to-Earnings Ratio (PE)
over the trailing twelve months of 147.56 may provide some sticker shock for prospective investors. However, since the company recently became profitable, the number can be misleading since the denominator in the PE equation is small. Furthermore, using traditional valuation metrics to value high-growth momentum stocks can be futile, as investors are willing to pay a premium for earnings growth. Impinj has beat consensus estimates for four straight quarters and is finally on its way to becoming consistently profitable. Last quarter, Impinj earned .34 cents a share
,
compared to a loss of .04 cents the year before. Meanwhile, revenue grew by 51% year over year. Next quarter, consensus analyst estimates suggest that Impinj will earn .34 cents a share – more than the .25 cents Impinj earned in all of 2020. Where is the growth coming from?
Image Source: Zacks Investment Research
Pictured: Impinj revenue growth overlayed on price chart
The International Air Transport Association (IATA), an association comprised of 290 airlines that account for 80% of the world’s air traffic, estimates that by 2026 RFID tracking technology will save the airline industry $5 billion a year. The IATA has also pledged to implement Impinj’s RFID technology as the chosen baggage tracking system standard. In other words, it is likely that many other airlines will follow Delta’s lead and implement RFID technology. With that said, the growth does not stop there. RFID technology is used in a variety of industries, including apparel, farming, manufacturing, and construction, to name a few. At a recent conference, Impinj explained that
Walmart
WMT
,
the world’s largest retailer and an Impinj customer, would expand its rollout of RFID chips in the coming quarters.
Mobileye Global Inc
MBLY
Automotive accidents are one of the leading causes of death in the United States. On average, more than 45,000 people die each year from car accidents. In the past ten years, the number of accidents in the U.S. has increased steadily following the advent of the smartphone and the general population’s subsequent addiction to such devices. What if there was a way to decrease the number of automotive accidents and fatalities drastically?
Autonomous Driving Technology
Mobileye Global is at the forefront of autonomous driving and the advanced driver-assistance system technology space. The company produces AI technology, including semiconductor chips, software, and cameras. While you may not necessarily have heard of Mobileye, you have most certainly heard of its customers. The Israel-based company has been in business for more than twenty years and is gaining momentum by inking partnerships with several leading automakers, including
General Motors (GM),
BMW,
Volkswagen
VWAGY
, Nio Inc
NIO
,
and
Toyota Motor
TM
.
Is the Second Time the Charm?
If you were following markets in 2017, you might recognize the name Mobileye. Mobileye was public in 2017 and went on a strong run before being acquired by semiconductor giant
Intel Corp (INTC).
Earlier this year, on November 1
st
, the company spun off from Intel and went public again. The fact that Mobileye had a successful IPO in 2022 is a sign of strength. Bear markets like 2022 typically produce little in the way of successful new offerings.
Image Source: Zacks Investment Research
Pictured: Mobileye price performance since IPO
Because of the general market’s conditions, Mobileye debuted this time at a similar valuation to when it was purchased by Intel five years ago. Despite that fact, Mobileye has grown its business drastically since then, sporting a revenue CAGR of more than 30% over the past five years. Judging by the price at which Intel sold Mobileye to the public, it is safe to say that the sale was spurred on by a desperate need for cash, rather than a strategic business decision. Intel has had double-digit negative earnings growth for four straight quarters.
Summary
Investors can expect both Impinj and Mobileye to outperform over the next year due to their stellar earnings, unique product offerings, and strong consensus estimates moving forward. One could expect that if the stocks were able to outperform in a poor market, a continued relief rally in tech should only catapult them higher – all things being equal. Because both stocks are classified as momentum in nature, investors should expect more volatility and should position accordingly.
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