This company enhances efficiency in data centers
Despite concerns about overspending on AI infrastructure, Microsoft plans to invest $80 billion in data centers in fiscal 2025, signaling strong demand for supporting technologies.
Navitas Semiconductor (NVTS) is positioned to benefit with its gallium nitride (GaN) power solutions, designed for energy-efficient applications like AI-driven data centers and electric vehicles.
The company recently introduced a 48-volt GaN platform for data centers, recorded its first revenues in this market, and expanded its customer pipeline to $1.6 billion.
Strategic partnerships, cost-saving measures, and a growing design win pipeline support its long-term growth potential, though reliance on Asian markets and early-stage GaN adoption pose risks.
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Despite concerns about overspending on artificial intelligence infrastructure, companies are pressing ahead with significant investments in data centers.
Microsoft (MSFT) has announced its plans to invest $80 billion in data centers during its fiscal year 2025.
The investment will focus on expanding the infrastructure needed to handle the massive computing power AI demands.
Microsoft’s Vice President Brad Smith explained that this level of spending is necessary to support AI advancements, as the technology requires specialized, large-scale data centers to function effectively.
This continued spending signals sustained demand and revenue opportunities for suppliers supporting these projects.
Navitas Semiconductor (NVTS) is well-positioned to benefit from this trend with its niche gallium nitride (GaN) power integrated circuits, which enable more efficient and compact electrical systems.
While these solutions are currently popular in consumer electronics, such as smartphone and laptop fast chargers, Navitas is making strides to expand into high-growth sectors like electric vehicles and data centers.
If successful, this shift could unlock significant opportunities for the company.
Navitas recently announced a 48-volt GaN platform specifically designed for AI-driven data centers, which are transitioning from traditional 12-volt systems to more efficient 48-volt power units.
This move aims to reduce energy loss by at least 25%, a critical improvement for hyperscale data center operators striving to optimize performance.
This innovation has already begun to generate traction, as Navitas recorded its first data center revenues in the third quarter of 2024, with a ramp-up expected throughout 2025.
The company’s entry into this market marks a strategic step toward diversifying its revenue streams and capturing a share of the growing demand for power-efficient solutions in energy-intensive applications.
To support its efforts, Navitas has partnered with Infineon Technologies. This collaboration focuses on creating common GaN specifications that enable dual sourcing for customers, reducing risks and encouraging adoption.
The partnership also enhances supply chain reliability, which is crucial as demand grows in markets like electric vehicles and data centers.
Additionally, this collaboration could position Navitas as a potential acquisition target for Infineon.
By working closely together, the companies align their long-term goals in advancing GaN technology, which could make a future takeover both seamless and strategically beneficial.
In the third quarter of 2024, Navitas reported 72 new design wins across several key markets. These included projects in electric vehicles, mobile applications, solar energy, and industrial systems.
This success has expanded the company’s customer pipeline to over $1.6 billion, a significant increase from $1.25 billion at the end of 2023.
While current revenue remains modest, the growing number of design wins underscores the rising demand for GaN technology across diverse applications.
The company also implemented cost-saving measures, including a 14% reduction in its workforce, to streamline operations and accelerate its path to profitability.
These changes are expected to save $2 million per quarter starting in 2025.
All these factors combined enabled Navitas to finally achieve profitability in 2022 and analysts’ expectation for 2024 Uniform return on assets ”ROA” is 20%.
Despite its potential, the market has concerns about GaN technology, which is still in its early stages, and unforeseen issues could slow adoption.
Additionally, the company’s reliance on Asian markets, particularly China, for a significant portion of its revenue introduces geopolitical risks.
We can also see this through our Embedded Expectations Analysis (“EEA”) framework.
The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.
In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.
At the current stock price, the market predicts that the company’s ROA will decrease to around 11% from the expected 20% in 2024.
Despite these challenges, Navitas’ strong design win pipeline, strategic partnerships, and focus on cost efficiency position it for long-term success.
As the company continues to execute its growth strategy, it could deliver significant returns for shareholders in the years to come.
Best regards,
Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research