Share costs of Cirrus Logic (NASDAQ: CRUS) have been in tremendous type to date in 2024, clocking good points of 48% as Wall Avenue turns bullish on the chipmaker’s prospects. The market is worked up a few turnaround within the smartphone market, its stable quarterly outcomes, and a possible enchancment within the fortunes of its largest buyer — Apple (NASDAQ: AAPL).
In any case, Cirrus is extremely reliant on Apple for a significant chunk of its prime line. Within the not too long ago concluded fiscal 2024 (which ended on March 30), Apple accounted for a whopping 87% of Cirrus’ income. Apple’s share of Cirrus’ prime line has elevated in recent times. 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 a superb factor, a turnaround in Apple’s fortunes associated to its efforts in synthetic intelligence (AI) might be a blessing in disguise for Cirrus Logic. Here is why.
Cirrus Logic’s largest buyer might assist speed up its development
Cirrus Logic is thought 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 powerful 35% 12 months over 12 months to $1.24 per share, and the determine was practically 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 traders’ bullishness because it was higher than the $302 million analyst estimate. The steering factors towards a small leap within the prime line from the prior-year interval’s determine of $317 million.
So Cirrus’ fortunes are intently tied to Apple. This explains why Cirrus’ top-line development wasn’t stable final quarter. Apple’s iPhone shipments, as an example, fell virtually 10% 12 months over 12 months within the first quarter of calendar 2024, in accordance with market analysis agency IDC. Gross sales of iPads and wearables additionally dropped. In consequence, 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, because of the proliferation of AI. Market analysis agency Counterpoint Analysis estimates that the AI smartphone market might clock a compound annual development charge (CAGR) of 65% by means of 2027.
Although Apple does not have an AI-capable telephone in its portfolio but (not like Samsung), the corporate not too long ago introduced a slew of AI-related options which might be anticipated to make their strategy 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 photographs to transcribing telephone calls, Apple has unveiled a number of options that might assist it leap onto the AI bandwagon.
JPMorgan analyst Samik Chatterjee believes that the mixing of AI-specific options within the 2024 iPhone fashions is more likely to spur a stable improve cycle and assist Apple promote extra smartphones. Extra particularly, Chatterjee expects Apple to promote 244 million iPhone models in fiscal 2025, which might be a ten% improve from the estimated shipments within the present fiscal 12 months. The momentum is anticipated to proceed in fiscal 2026, with estimated shipments of 268 million models.
Furthermore, because the tech big’s Apple Intelligence platform is appropriate solely with the iPhone 15 Professional collection and iPads and MacBooks powered by M1 chips, the corporate might witness the arrival of a stable machine improve cycle. JPMorgan estimates that this new improve cycle will probably 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 anticipated to launch MacBooks with AI-capable chips this 12 months, which might enable the corporate to faucet one other doubtlessly profitable market. All this bodes properly for Cirrus Logic and explains why analysts have been turning bullish about its prospects.
Enhancing development might result in extra inventory upside
Cirrus Logic’s income in fiscal 2024 was down virtually 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 obvious from the next chart.
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 prime participant comparable to Apple in these markets ought to assist it maintain wholesome development for a very long time to come back.
That is why traders would do properly 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 might maintain that pattern with Apple’s assist.
As such, there’s a good probability that Cirrus could possibly add to the already spectacular good points it clocked in 2024.
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Harsh Chauhan has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Apple. The Motley Idiot recommends Cirrus Logic. The Motley Idiot has a disclosure coverage.
This Semiconductor Inventory Has Jumped 48% in 2024, and Synthetic Intelligence (AI) May Assist It Soar Additional was initially printed by The Motley Idiot
