2023-06-28 06:45:23 ET
Summary
- Navitas Semiconductor has experienced significant sales growth and is investing in the growing electric vehicle market and power grid.
- The company is raising capital through share offerings and making strategic investments in manufacturing and product development.
- Despite potential risks such as technology obsolescence and supply chain disruptions, I considered Navitas stock a favorable investment for growth-oriented investors.
Investment Thesis
Navitas Semiconductor ( NVTS ) stock has risen more than 30% since its first-quarter 2023 earnings report. A small company betting big on electric vehicles (EVs) and the power grid achieved spectacular sales growth, with revenue more than double year over year in Q1 2023 , order backlog up 50%, and management forecasting another revenue double in the second quarter., and the market rewarded it.
The firm is a start-up power chip developer that went public in late 2021 through a special purpose acquisition company [SPAC]. As you can expect, shares faltered in 2022 due to the bear market resetting stock prices, particularly on high-flying upstarts like this one.
The company has established itself as a designer of GaN (gallium nitride) and SiC (silicon carbide) power chips. GaN and SiC are increasingly being used in electric vehicles, quick charging, and high-end mobile devices. This position has lately placed the company in one of the most desirable marketplaces, which I feel bodes well for the company’s future. With the company recently raising capital through share offering and investing in favorable investments, I am optimistic about the company’s prospects in the long run.
The Growing EV Market: Long-term Tailwind
Through 2032, the market for electric vehicles is expected to expand at a stunning CAGR of 23.1%. The global demand for electric vehicles has surged in response to rising environmental concerns and fluctuating oil prices. According to projections, the global market for EVs will be worth approximately $1,716.83 billion by 2032, up from a projected $205.58 billion in 2022.
Precedence Research
There were 2 million EV sales in the first quarter of 2022 alone, per the Global EV Outlook 2022. Electric vehicles have many advantages over conventional ones, such as lower noise and air pollution levels, zero carbon emissions, more efficient motors, less maintenance, and higher performance.
Strategic Investment Initiatives: Capitalizing On Growth Efficiently
NVTS announced the first in a series of strategic manufacturing investments to increase control, lower costs, and increase revenue capacity for its GeneSiC silicon carbide [SiC] power semiconductors.
An initial $20 million investment enables the company’s Torrance, CA headquarters to house a three-reactor SiC epi-growth facility. The initial stage in producing individual SiC power devices is to add a SiC epitaxial (or “epi”) layer on a raw SiC wafer. The first AIXTRON G10-SiC epitaxy reactor, with 6” and 8” wafer capacities, is projected to be fully qualified and in production by 2024 . Navitas sees its new facility’s epi-growth services as a vital process step that may support an additional $200 million annual production. According to the business, third-party vendors will be used for additional epi-growth, wafer fabrication, and assembly processes.
Navitas’ investment in internal epi capacity is one of several measures designed to support the company’s recently announced $760 million client pipeline of projected potential future sales based on expressed customer interest in eligible programs. While the conversion of this pipeline into orders or shipments depends on various circumstances, including available capacity, the firm anticipates that the planned capacity growth will give a favorable return on investment under the majority of projected planning scenarios.
Diversifying Into High-Power Markets: Commanding The Market With Innovative Products
With their cutting-edge silicon carbide [SiC] power products in SiCPAK modules and bare die, NVTS announces an expansion of their product line into higher power markets . Navitas has the broadest selection of SiC technology, with a range from 650 V to 6,500 V. The GeneSiC SiCPAK is the first direct entry point into higher-power applications from an original line-up of discrete packages, ranging from through-hole TO-247s to 8x8 mm surface-mount QFNs. A thorough power-module roadmap is being developed, including low-voltage silicon control ICs, high-voltage SiC MOSFETs and MPS diodes, GaN power ICs, and high-speed digital isolators.
SiCPAK modules use ‘press-fit’ technology to provide compact dimensions for power circuits and provide end customers with cost-effective, power-dense solutions. The modules are based on GeneSiC die, which have proven to be better in performance , dependability, and robustness. One example is a SiCPAK half-bridge module with trench-assisted planar-gate SiC MOSFET technology, rated at 6 mOhm and 1,200 V. Multiple SiC MOSFET and MPS diode configurations will be available to develop application-specific modules for improved system performance. The first batch will feature 1,200 V-rated half-bridge modules with 6, 12, 20, and 30mOhm ratings.
Each SiC chip within the lead-free SiCPAK has silver [Ag] sintered to the module’s substrate for enhanced cooling and dependability. The substrate is ‘direct-bonded copper’ [DBC] and is made on silicon-nitride (Si3N4) ceramics using an active-metal brazing [AMB] process, making it excellent for power-cycling applications. This design provides great strength, flexibility, fracture resistance, and thermal conductivity for cool, reliable, long-life operation.
Raising Capital
In connection with its previously announced public offering of 10 million shares of its Class A common stock, Navitas announced that the underwriters had fully exercised their option to buy 1.5 million additional shares at the public offering price of $8.00 per share. This translated to additional gross proceeds of $12.0 million before deducting underwriting discounts and commissions and offering expenses.
When the option to purchase further shares was fully exercised, the total number of shares sold by Navitas in the offering scaled to 11.5 million shares. A total of $92.0 million was raised before subtracting any fees or commissions associated with the offering or underwriting. The successful issuance and sale date of the extra shares was June 5, 2023. The net proceeds from the offering will be used for working capital and other general corporate objectives, which may include making strategic manufacturing investments or completing acquisitions.
Is the Offer Justified?
At its current burn rate of $49 million per year, the $80 million in additional money will be enough to keep this cash-burning chips company operating for nearly two full years. With $80 million in shares sold at $8 each, then 10 million additional Navitas shares will be issued. Due to this, the number of shares outstanding in the company will grow by 6.2%, which will have a dilutive effect on future earnings per share by the same magnitude.
In my judgment, since the raised capital will keep the company afloat for about two years and possibly fund more growth initiatives, the negativity of the offer lies in the dilution aspect. However, since the company is not projected to have any profits not earlier than 2025 , I think the current offer is justified. Further, equity funding is advocated for when it comes to start-ups like Navitas, which gives me another reason to justify the decision.
Risks Of Investing Here
The company’s expansion efforts have a bright future, but investing here has risks. Below are some risks I believe can affect investment in this company. The risks are both systemic and inherent.
- Financial Risk: One particular challenge facing this company is the absence of profits. The company has been making losses which pose a risk to profit-oriented investors. Projections show that the company won’t turn profitable not earlier than 2025, which in my view, serves as a risky venture for profit-oriented investors.
- Risk of dilution: NVTS, a start-up, faces a funding challenge since most financial institutions tend to avoid giving credit to start-ups. This leaves the company with one option for raising capital which is equity. The implication of that would be massive share dilution which, if not well executed, may affect share prices as well as shareholders’ positions in the long run.
- Technology risk: Semiconductor technology is rapidly evolving, and investments in this sector are subject to the risk of technological obsolescence. If NVTS fails to adapt to emerging technologies or develop cutting-edge products, it could lose its competitive edge and suffer financial losses.
- Supply chain risk: Semiconductor manufacturing involves complex supply chains that can be vulnerable to disruptions such as natural disasters, political instability, or labor strikes. Any disruption in the supply chain could impact production, lead to higher costs, and affect the company’s ability to meet customer demand.
Investment Decision
Based on the data provided in this analysis, it is very pleasing to see this company aggressively investing in prime markets with innovative products. Further, in the wake of high-interest rates, the company has resulted in raising capital through equity funding. In my opinion, I think that was a justifiable decision that would leave the company’s balance sheet solid by not adding debt to it.
I believe the company’s growth initiatives are very potent, and I expect them to steer its financial growth in the long run. In light of this bright future, I think this company is a good investment for growth-oriented investors but keep in mind the potential risks.
For further details see:
Navitas Semiconductor: The Future Looks Favorable In The Growing Market