2023-09-08 04:11:52 ET
Summary
- Atomera has patented MST technology with potential in mobile phones, data centers, and IoT.
- The stock's 10-week moving average crossing over its 40-week counterpart could lead to more selling.
- Atomera needs more commercial licensing deals to avoid stock dilution and improve financials.
Intro
Atomera Incorporated (ATOM) is a US firm that operates in the semiconductor industry, where the company's mission is to integrate its MST technology into its customers' products. The company has patented its MST (Mears Silicon Technology) and sees significant potential in the likes of the mobile phone market, data centers, and the IoT (space) as communication & electronic equipment continues in its growth phase. On the surface, the fact that electronic devices (incorporating MST technology) can be made smaller with performance increasing as a result seems a no-brainer from an investing standpoint.
Furthermore, Atomera bulls have to be excited by the sheer scale of the company's opportunity here. So in effect, any customer who wishes to incorporate Atomera's technology into its products will have to enter into a licensing agreement over time (recurring income model). To this point, STMicroelectronics (STM) actually put pen to paper back in April of this year with respect to Atomera's first commercial licensing deal in its history. The market as we see below responded favorably to the news.
Technical Risk
However, shares soon thereafter turned over once more to the downside, and here is where investors need to be careful. We state this because the stock's 10-week moving average looks like it is about to cross over its 40-week counterpart any 10 now, which could bring about another avalanche of selling. This is what happens when the market perceives no change in a company's growth or profitability trends over the near term. Suffice it to say, if Atomera's April'2023 lows of just over $5 a share were not to hold in this latest down move, the stock's 2020 lows of under $3 a share would be the next line of support for the semiconductor company.
Strong Customer Interest
Management though on the recent Q2 earnings call remained adamant that the recent ST licensing deal validates Atomera's MST technology. In fact, putting the absence of top-line sales aside, management's confidence can be clearly seen by higher R&D costs, a growing headcount, and higher spending overall (where customer visits continue to grow aggressively). Suffice it to say, that the STMicro deal should serve as a strong marketing campaign for Atomera, and we can see this with respect to how engagement levels are improving with semiconductor manufacturers.
Remember, one would think that Atomera does not need multiple high-end deals in order to significantly change the market cap of the company going forward. Furthermore, it will be interesting to see (on the basis of ongoing customer deals) whether more semiconductor manufacturers will begin working with Atomera's technology quickly in order to maintain competitiveness in their firms in the long run. If the end result (concerning STMicro's products) is compelling concerning price & performance, a stampede for Atomera's technology by the majors would not be totally out of the question here.
Share Dilution Risk
At this point in time, however, Atomera needs more commercial licensing deals to essentially keep the wolf the door with respect to its financials. The lower the stock price goes over the near term, the more stock dilution will be needed over time which inevitably will dilute existing shareholders' investments. This is the risk present 'long' holders are undergoing at present in Atomera. Not only are lower lows increasing one's paper losses but sustained dilution means one will continue to own less of the company until the financials can change in earnest. Although multiple one-off initial milestone payments may come as a result of fresh commercial deals, the market needs to see a line of sight concerning sustained royalty payments to move the share price in earnest.
In terms of tool progress & MST installation in STMicro for example, we have already seen delays that seem to stem from the Covid-19 supply-chain overhang. Therefore, investors must ponder whether this issue could repeat itself with Atomera's future clients. Again, the issue is not necessarily whether MST will be a game-changer here but rather how long it will take for this technology to go mainstream.
Conclusion
Therefore, to sum up, Atomera with its MST technology has undoubtedly significant potential but negative earnings and ongoing dilution have done nothing for the share price in recent times. Bulls will undoubtedly continue to eye up where this stock has traded in the past but we would not recommend adding to existing positions on an aggressive down move. We look forward to continued coverage.
For further details see:
Atomera: Assessing If STMicro Deal Will Be The Catalyst For A Sustained Bull-Run