London-listed semiconductor company Alphawave Semi ‘s stock is set to double over the next 12 months, according to Jefferies. The investment bank has set a price target of £2.70 (or 270p) on Alphawave’s shares, which implies an upside of 112% from the current level. Stocks listed in the U.K. are typically priced in pence. The bullish view comes despite Jefferies noting Alphawave’s “disappointing” profit margins and negative free cash flow in the first half of 2023. The company posted a net loss of $13.4 million, compared to a profit of $16.3 million for the first half of 2022. The bank’s analysts said these issues stemmed mainly from the legacy custom silicon business OpenFive, which Alphawave acquired last year. Shares of the company are still up nearly 20% this year despite having sold off by more than 25% since July. AWE-GB YTD line Jefferies expects profitability to improve in the second half as Alphawave transitions to higher-margin custom chip design services for U.S. Big Tech firms. According to the investment bank, Alphawave has already achieved four design wins using the advanced ” 3nm” manufacturing process, two of which are with major U.S.-based cloud computing giants. “We estimate that some of Alphawave’s strongest hyperscaler engagements are with AWS and Microsoft ,” said Jefferies analysts led by Janardan Menon in a note to clients on Sept. 26. “We expect bookings to remain strong in [second half of 2024] and beyond, helping drive the company’s growth to its medium-term targets of $500m of revenue at an [adjust profit] margin of 30% in 2025.” The new contracts with Big Tech firms are for Alphawave’s products that are expected to enable artificial intelligence applications. Founded in Toronto, Canada in 2017, the company is now headquartered in London, U.K., and maintains an R & D facility in Cambridge. The company licenses its intellectual property — which connect different components within chips — to cloud computing providers and semiconductor manufacturers. Barclays analysts, while more cautious, are also bullish on the stock. The investment bank expects shares to rise by more than 40% over the next 12 months to £1.80 (or 180p) a share. “We see Alphawave’s guidance as conservative given they were announced before AI investment accelerated this year and we see Alphawave as one of the key potential beneficiaries, see Alphawave Semi … at least in Europe,” said Barclays analysts led by Simon Coles in a note to clients Sept. 25.
