indie Semiconductor (NASDAQ: INDI) is a small-cap chip stock that has had a rough go of it in 2024. Shares are down 43% this year. However, several Wall Street analysts are still bullish on this name. The average price target released since August, including one from B. Riley (NASDAQ: RILY), is $8 per share. The company’s value would need to rise 72% to meet that level.
This comes even after the company’s shares are up nearly 36% since its earnings report on Nov. 7. The company may be generating positive momentum. I will break down exactly what this company does and the recent developments around it. I will examine the company's financial progress and provide my long-term view on indie Semiconductor.
indie’s Nex-Gen Chips for Autonomous Driving
indie Semiconductor specializes in designing chips and software for Advanced Driver Assistance Systems (ADAS). Simply put, these are the chips and software needed to make autonomous driving a reality. These chips are often referred to as edge sensors and perform tasks like light detection and ranging (LiDAR). These edge sensors fall into a category called 'edge computing,' where information is processed locally and close to its source for immediate decision-making.
Autonomous driving systems need to make real-time decisions to avoid accidents. The data they process typically involves detecting other cars on the road with which they are in close proximity. This differs from cloud computing, where a user's computer connects to distant servers and where the data is processed. Autonomous driving systems can't afford to send data to remote servers for processing—they must handle it directly in the vehicle to ensure safety and timely responses.
indie Shares Falling on Industry Weakness in 2024
indie has been lowering its 2024 revenue forecast from its initial estimate, causing shares to fall. If Q4 goes as planned, revenues will have fallen 3% in 2024, compared to the 29% growth the company was hoping for. However, things showed a positive sign of light in Q3. The firm very slightly beat expectations on revenue and operating profit. Additionally, it forecasted revenue growth in Q4 of 7% from Q3 at the midpoint. This growth rate was three times higher than the 2.5% growth it forecasted for both Q2 and Q3. This accelerated growth expectation is likely why shares spiked after the announcement.
The company is still unprofitable, although it was making consistent progress toward profitability in 2023. The company’s adjusted gross margin increased by 250 basis points throughout the year to 52.5%. In the final quarter of 2023, it nearly turned an overall profit with a net loss per share of just $0.01. Unfortunately, indie has been suffering from an industry-wide automotive slowdown in 2024. Analysts expect global vehicle production to be down 2% in 2024 from 2023. This slowdown caused an oversupply of indie’s parts at automakers, causing new orders to slow. This has caused indie to take steps back on profitability and revenue growth. Its loss per share last quarter was $0.09, and its adjusted gross margin was 50.4%.
indie’s Innovative Products Could Make It the Next Big Thing
Despite the slowdown in indie’s business, it’s clear the company’s products are still in high demand. It currently has a backlog of design wins worth $7.1 billion. This means that, after testing indie's solutions against its competitors, customers agreed to buy indie's devices for their future products. In context, that backlog is an astonishing 31 times larger than the company’s revenue over the last 12 months. It is also over seven times larger than the company’s current value. Still, indie will recognize it as revenue over a long period of time.
indie expects to generate $700 million in annual revenue in 2028. That’s over three times more than it is on track for in 2024. Of its backlog, 72% is from ADAS systems, showing that car manufacturers are leaning on indie to get this futuristic technology into their vehicles. This is further evidenced by the fact that indie was recently recognized as "Auto Sensor Innovation of the Year" by AutoTech Breakthrough Awards. The group said of indie’s iND880 processors, "a monumental leap forward in automotive technology." I believe the innovation of indie’s technology and the demand for it give the stock the potential to be a huge winner when auto production recovers.
