A hedge fund run by a billionaire is gobbling up this AI speculative stock. Should I?

Billionaire stock portfolios can uncover top investment ideas. After all, most billionaire investors have a superb track record when it comes to picking stocks.

Point72, a global asset manager led by billionaire Steven A. Cohen, has been steadily buying shares of the gallium nitride (GaN) power IC specialist. Navitas Semiconductor Company (NASDAQ: NVTS) from the first quarter of 2023.

After adding another 4.12 million shares in Q2 2024, Point72 now owns a 2.34% stake in the next-generation semiconductor company. This investment is intriguing for several reasons.

For one thing, Navitas stock is trading at just $3.02 per share, a price that usually keeps professional investors on edge. Next, the semiconductor company isn’t in the best financial shape either. More on that in a moment.

However, Cohen’s aggressive buying over the past year and a half warrants the attention of investors looking for the next growth piece. Let’s dig deeper to better understand Navitas’ core value proposition and risk profile.

Navitas: A next generation semiconductor player

Navitas designs, develops and markets gallium nitride, silicon carbide power integrated circuits and related components used in power conversion and charging. Its products find applications in mobile devices, consumer electronics, data centers, solar inverters and electric vehicles (EVs). The company operates globally, with its principal executive offices in Torrance, California.

Founded in 2013, Navitas is pioneering the GaN market with a proprietary GaN power IC platform that ships in mass production to Tier 1 companies such as Samsung, della, Lenovoand Amazon. The company’s solutions offer faster charging, higher power density and greater energy savings compared to silicon-based power systems.

Market strengths and opportunities

Navitas’ key strength lies in its leading position in IP, including a comprehensive patent portfolio and a process design kit (PDK). The company’s research and development activities, located mainly in the US and China, consumed about 90% of its revenue in the first half of 2024.

The company targets several high-growth markets. In the Enterprise/AI Data Center segment, Navitas develops AC-DC power platforms up to 10 kW to meet NvidiaHopper-Blackwell-Rubin’s demanding roadmap. The EV/eMobility division is experiencing strong growth in its customer pipeline, with more than 200 projects in development.

The Appliances/Industrial segment is poised for a revenue growth in 2025 in various applications. In the solar/energy storage market, Navitas is replacing legacy silicon chips with SiC and GaN technologies, according to its latest 10-Q.

The story continues

Gallium Nitride Market: Heats Up for Future Demand

The gallium nitride device market is expected to grow significantly in the coming years. This market will expand from $126 million in 2021 to $2 billion in 2027, representing a compound annual growth rate of 59%, according to market research firm Yole Développement. This parabolic growth is primarily driven by increased demand for consumer electronics, data centers and electric vehicles.

However, the robotics revolution could serve as a future catalyst for even more explosive growth in the GaN market. Artificial intelligence (AI) is expected to power advanced robotics from 2025 to 2035, potentially unlocking trillions in economic value. While this is not the primary driver of current GaN market growth, it represents a significant future opportunity that could support and accelerate market expansion.

Navitas’ technology could play a crucial role in addressing the power consumption challenges currently hampering the field of robotics. As robots become more integrated into everyday life, they will need access to fast recharging systems that can meet their enormous energy demands. Navitas appears to have intellectual property rights to technology that could address this critical need, positioning the company to capitalize on this future demand.

Financial challenges and risks

However, Navitas faces significant financial challenges. As of June 30, 2024, the Company had $112.0 million in cash and cash equivalents. GAAP loss from operations for the most recent quarter was $31.1 million. Over the past five years, Navitas’s outstanding shares have also increased substantially due to dilution, while its share price has fallen sharply.

NVTS data by YCharts

Barring a sharp increase in revenue, possibly from its data center business, this trend may continue. While sales are growing by double digits, Navitas is expected to generate only about $148 million in revenue in 2025, according to Wall Street’s most optimistic forecast. The company is also expected to remain cash-flow negative next year, potentially draining its remaining cash reserves.

Is this AI speculative stock a buy?

Steven Cohen’s hedge fund appears to be positioning itself ahead of a potential shift in the semiconductor industry from traditional silicon-based chips to GaN semiconductors. Navitas, as a leader in this niche, could benefit enormously from this trend. Its actions also provide exposure to the upcoming robotics revolution.

However, investors should carefully weigh the company’s growth potential against its financial risks before following in Cohen’s footsteps. Navitas is far from a slam dunk and serious challenges lie in its path to success.

What is the bottom line? This AI stock is considered a potential buy for aggressive investors with a high risk tolerance. That said, Navitas probably shouldn’t represent more than 1% of your stock portfolio at this early stage, and investors will want to keep a close eye on the company’s progress.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. George Budwell has no position in any of the shares mentioned. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.

A hedge fund run by a billionaire is gobbling up this AI speculative stock. Should I? was originally published by The Motley Fool