Navitas Semiconductor Corp. (NASDAQ: NVTS) has seen an impressive rise, with its stock price increasing nearly 300% from below $2 on May 22nd to over $8 currently. This substantial growth followed Navitas’s announcement last month that Nvidia had selected the company to supply power for its next-generation artificial intelligence (AI) data center systems.
Navitas specializes in gallium nitride (GaN) and silicon carbide (SiC) technologies. The company’s role will be vital in addressing essential power supply scaling challenges for Nvidia’s powerful AI chips, including the highly anticipated Rubin chips, which are expected to replace the current industry-leading Blackwell chips. That said, if you are looking for upside with less volatility than individual stocks, the Trefis High-Quality portfolio offers an alternative – having outperformed the S&P 500 and produced returns exceeding 91% since its inception. Separately, see – QBTS Stock: What’s Next For D-Wave After 1,350% Rally?
What’s The Downside Risk?
Despite the promising outlook for GaN technology, Navitas Semiconductor encounters significant risks. While the chances of a U.S. recession have decreased with easing trade tensions, ongoing expectations of economic growth slowing do not favor the semiconductor industry, directly affecting Navitas. The company’s success is closely linked to the cyclical semiconductor market, which goes through significant boom-bust cycles. Navitas caters to fluctuating sectors such as fast-charging adapters, AI data centers, solar micro-inverters, and electric vehicles. A downturn in these end markets could directly impact Navitas’s revenue and growth.
The competitive environment intensifies these risks. Navitas faces competition from well-established and capital-rich rivals including Monolithic Power Systems, Wolfspeed, Infineon Technologies, STMicroelectronics, and ON Semiconductor. Several of these companies, like Infineon, Texas Instruments, and STMicroelectronics, are aggressively pursuing the GaN market, which could result in margin compression and loss of market share for Navitas as the technology matures.
From a financial standpoint, Navitas shows troubling fundamentals. In 2024, the company reported revenue of $83.30 million but incurred losses of $84.60 million, indicating it is losing more than it earns.
Recently, Navitas stock has faced considerable price volatility, underperforming the broader market during uncertain times. For example, NVTS fell 84% during the 2022 inflation shock market correction, a much steeper decline than the S&P 500’s 25.4% peak-to-trough drop. More recently, the stock plummeted over 60% this year, from $4 in January to below $2 in April, amidst tariff and trade tensions. In contrast, the S&P 500 index only experienced a modest 19% decline during the same timeframe.
The inherent volatility of the semiconductor sector enhances these risks. If growth falls short or the GaN market turns out to be less profitable, Navitas could face severe multiple compression. Its current lack of profitability makes it vulnerable during downturns, lacking the financial buffer of profitable competitors. With minimal profits and dependence on cyclical end markets, any slowdown in GaN adoption or broader semiconductor weakness could cause a significant downturn in its stock price.
While the Nvidia agreement could certainly keep the stock price active, investors will eventually consider those prospects against Navitas’s high valuation. Currently, NVTS stock has a price-to-sales (P/S) ratio of 20.5, starkly contrasting with the S&P 500’s P/S of 3.0. It is also important to note that the average analyst price target is set at $4, suggesting a notable 50% potential downside for NVTS from its present levels.
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