Trading a Small-Cap 'Power' Firm as Nvidia News Turns Heads
This small-cap semi name is enjoying a major surge after the latest news.
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On Wednesday evening, Navitas Semiconductor NVTS closed at $1.91, which was down nine cents or 4.5% for the day. On Thursday morning, well ahead of the opening bell, I have recently seen the stock cross the tape at $4.98 after trading as high as $6.57. Anything above $4.55 would be a 2025 high for this stock and that high was made on January 10, so it had been a tough year for this name. Until the Wednesday into Thursday overnight session that is.
Navitas Semiconductor considers itself to be a power-semiconductor operation. The Torrance, California headquartered firm engages in the design, development and marketing of "power" semiconductors used in power conversion and charging. This includes gallium nitride integrated circuits, silicon carbide devices, silicon system controllers and digital isolators.
The firm's products are incorporated into a wide variety of consumer and business-centric products such as fast chargers for mobile devices and laptop computers, data centers, solar inverters and electric vehicles. The company's recently developed products have been designed with a focus on longer life expectancy and improved resilience when exposed to extreme temperatures.
The News
The firm recently announced a collaboration with Nvidia NVDA. Navitas has collaborated with the AI-capable chip design king to develop a next-generation 800V high-voltage direct current power architecture. The intent is to support Nvidia's "Kyber" rack-scale system, which has been built to power GPUs leveraging the Navitas GaNFast gallium nitride and GeneSiC silicon carbide technologies to deliver high-end efficiency and performance.
The goal of the joined mission is to overcome the current limitations of the 54V in-rack power distribution. These limitations would be lower power density, less than optimal efficiency and elevated usage of copper. With this collaboration, it is Nvidia's hope that power efficiencies improve by 5%, which seems modest, but that maintenance costs decrease by as much as 70%.
Earnings and Fundamentals
Almost three weeks ago, Navitas reported the firm's first quarter earnings. Navitas posted an adjusted EPS of -$0.06 on revenue of $14.02 million. These top- and bottom-line numbers pretty much hit consensus, but it should be noted that those revenues were down 39.5% from the year-ago comparison. This collaboration appears to have come just in the nick of time. Current quarter revenue was seen at $14 million to $15 million, while that took the midpoint just above consensus view, it would still only be good for a year-over-year contraction of 29.5%.
For the trailing 12 months as of March, Navitas generated an operating cash flow of -$52.6 million. Tack on capex spending of $3.6 million and free cash flow landed at -$56.5 million. The firm is obviously in no position to return capital to shareholders.
Turning to the balance sheet, Navitas ended the March quarter with a cash position of $75.1 million, and inventories of $16.1 million. That put current assets at $108.3 million. Current liabilities added up to just $19.3 million. That had the firm's current and quick ratios at 5.61 and 4.78, respectively, which is quite healthy.
Total assets amounted to $370.8 million, but $230.7 million, or 62% of that was labeled as either "goodwill" or "other intangibles" which is sort of ridiculous. Total liabilities less equity came to just $29 million, so there is no reason to bloat the balance sheet with intangible assets. There was also no debt of any kind anywhere on the balance sheet. This is a strong balance sheet. That said, the intangibles should be brought down to some less fanciful level and the cash burn needs to be brought under control. Perhaps that's where a working relationship with Nvidia comes in.
The Chart
Will HVTS break out of its downward sloping trend on Thursday? Of course.
Chase the stock? I am not.
That does not mean that I am not willing to speculate. See that 200-day SMA at $2.60. Should there be a test of that level from above next week or even the week after, that could be the spot that portfolio managers are looking to stuff their portfolios with under-covered AI-adjacent names. I won't tell you what to do. I am going to let this one breathe and take my first serious look after implementing the old "three-day" rule.
At the time of publication, Guilfoyle was long NVDA equity.
