A turnaround within the fortunes of its largest buyer may assist this chipmaker ship extra upside.
Share costs of Cirrus Logic (CRUS -0.04%) have been in high-quality type to date in 2024, clocking positive aspects of 48% as Wall Avenue turns bullish on the chipmaker’s prospects. The market is worked up a couple of turnaround within the smartphone market, its stable quarterly outcomes, and a possible enchancment within the fortunes of its largest buyer — Apple (AAPL 0.40%).
In spite of everything, Cirrus is very reliant on Apple for a serious chunk of its high line. Within the just lately concluded fiscal 2024 (which ended on March 30), Apple accounted for a whopping 87% of Cirrus’ income. Apple’s share of Cirrus’ high line has elevated lately. Apple contracts accounted for 83% and 79% of its income within the previous two fiscal years.
Whereas reliance on a single buyer for a lot enterprise will not be factor, a turnaround in Apple’s fortunes associated to its efforts in synthetic intelligence (AI) could possibly be a blessing in disguise for Cirrus Logic. This is why.
Cirrus Logic’s largest buyer may assist speed up its development
Cirrus Logic is understood for supplying audio codecs, digicam controllers, fast-charging chips, and haptics options to smartphone prospects like Apple. It posted $372 million in income within the fourth quarter of fiscal 2024, which was flat on a year-over-year foundation however crushed the Wall Avenue estimate of $317 million. The corporate’s non-GAAP (adjusted) earnings shot up a formidable 35% 12 months over 12 months to $1.24 per share, and the determine was almost double the $0.64 per share consensus estimate.
Moreover, Cirrus’ forecast of $320 million in income within the present quarter on the midpoint of its steering vary added to buyers’ bullishness because it was higher than the $302 million analyst estimate. The steering factors towards a small bounce within the high line from the prior-year interval’s determine of $317 million.
So Cirrus’ fortunes are carefully tied to Apple. This explains why Cirrus’ top-line development wasn’t stable final quarter. Apple’s iPhone shipments, for example, fell nearly 10% 12 months over 12 months within the first quarter of calendar 2024, in line with market analysis agency IDC. Gross sales of iPads and wearables additionally dropped. Consequently, Apple’s general income was down 4% 12 months over 12 months within the second quarter of fiscal 2024 (which ended on March 30).
The excellent news for Cirrus Logic is that Apple’s iPhone gross sales are anticipated to select up tempo because the 12 months progresses, due to the proliferation of AI. Market analysis agency Counterpoint Analysis estimates that the AI smartphone market may clock a compound annual development charge (CAGR) of 65% by 2027.
Although Apple does not have an AI-capable telephone in its portfolio but (not like Samsung), the corporate just lately introduced a slew of AI-related options which are anticipated to make their option to the following iPhone, which is able to go on sale later this 12 months. From permitting customers to leverage AI to summarize textual content to creating authentic photos to transcribing telephone calls, Apple has unveiled a number of options that would assist it bounce onto the AI bandwagon.
JPMorgan analyst Samik Chatterjee believes that the combination of AI-specific options within the 2024 iPhone fashions is prone to spur a stable improve cycle and assist Apple promote extra smartphones. Extra particularly, Chatterjee expects Apple to promote 244 million iPhone items in fiscal 2025, which might be a ten% enhance from the estimated shipments within the present fiscal 12 months. The momentum is predicted to proceed in fiscal 2026, with estimated shipments of 268 million items.
Furthermore, because the tech big’s Apple Intelligence platform is appropriate solely with the iPhone 15 Professional sequence and iPads and MacBooks powered by M1 chips, the corporate may witness the arrival of a stable machine improve cycle. JPMorgan estimates that this new improve cycle shall be equal to what Apple witnessed when 5G smartphones arrived, and it’s value noting that the tech specialist’s development took off at the moment.
Moreover, Apple is predicted to launch MacBooks with AI-capable chips this 12 months, which might permit the corporate to faucet one other probably profitable market. All this bodes nicely for Cirrus Logic and explains why analysts have been turning bullish about its prospects.
Bettering development may result in extra inventory upside
Cirrus Logic’s income in fiscal 2024 was down nearly 6% from the earlier 12 months to $1.79 billion. Nonetheless, analysts expect it to report a small enchancment within the present fiscal 12 months, which is clear from the next chart.
CRUS Income Estimates for Present Fiscal Yr information by YCharts
Because the chart above signifies, analysts elevated their income steering for the following fiscal 12 months and anticipate Cirrus to ship stronger development. The prospects of AI-enabled smartphones and PCs and Cirrus’ relationship with a high participant corresponding to Apple in these markets ought to assist it maintain wholesome development for a very long time to return.
That is why buyers would do nicely to purchase Cirrus Logic inventory whereas it’s nonetheless low cost. This semiconductor inventory trades at 26 instances trailing earnings proper now, a reduction to the Nasdaq-100‘s trailing earnings a number of of 32 (utilizing the index as a proxy for tech shares). We noticed that Cirrus’ earnings accelerated properly within the earlier quarter, and the corporate may maintain that pattern with Apple’s assist.
As such, there’s a good likelihood that Cirrus might be able to add to the already spectacular positive aspects it clocked in 2024.
