One of Europe's best-performing stocks is up 100% since the start of the year, and an analyst says its rise over the coming years could be stratospheric. Semiconductor stocks have broadly advanced over the course of 2021, as high-profile chip shortages have rippled through to the automotive and smartphone sectors. Nordic Semiconductor has emerged as the strongest performing chip stock in Europe by some distance, and CNBC spoke to one of a small group of analysts who cover the stock about what is driving its meteoric rise, and where it could go from here. Christoffer Wang Bjørnsen, financial analyst at DNB Markets in Oslo, said a combination of unique hardware, a changing product environment and a new low-power cellular offering had positioned the company to grow exponentially in the medium term. Nordic is the fourth best-performing stock on the pan-European Stoxx 600 so far this year. British media company Future comes in first, followed by Swedish investment firm EQT and life sciences company AddLife , also based in Sweden. Hardware Bjørnsen said DNB was drawn to the Nordic Semiconductor story in 2015 due to its ability to produce small semiconductor chip sets with low power consumption. In size-constrained applications, such as iPads, smartwatches or Apple TV remotes, Bjørnsen said he began noticing that a single, more expensive Nordic chip was beginning to be used in various products. Previously, separate chips from other chipmakers had been required for Bluetooth capabilities and the central microcontroller. "To have a single chip that does a lot of jobs that other vendors have to sell you multiple chips for is quite powerful," he said. Being able to do the same jobs with a single chip enabled the company to reduce materials costs while charging more for the chipset, Bjørnsen explained. Innovation Having long focused on Bluetooth technologies, Nordic has in recent years been developing its Thread product, which the company dubs a "reliable, secure, and scalable way to connect low-power devices." Although initially hesitant as the technology was not widely in demand, Bjørnsen said Nordic had been proven right in recent years, and credited management for consistently being ahead of the curve on new developments within the company's markets. "That has enabled them to be the main vendor of these wireless chipsets for Google and Apple, Samsung and Amazon , and the smartphone applications," he said. "When you talk to the management and the mid-level management, you can tell that no one knows more about wireless technology than they do, and that enables them to pinpoint together the right technologies to integrate into their chipsets well ahead of competition, and I think that's very important in some industries." Share price outlook In its second-quarter earnings, Nordic reported $4.6 million in revenue for its new cellular internet of things division, a 289% increase from the same period in 2020. However, this constituted just a fraction of its overall revenue of $147.6 million. The company also accrued a record order backlog of $1.25 billion, stretching through 2022. Nordic shares were trading at around 283 Norwegian krone ($32.04) at the end of last week, but Bjørnsen expects them to reach 350 krone in the short term. However, he argued that current valuations do not account for the seven years of investment in new technologies which are about to bear fruit. "That's just based on me expecting the world of investors to start to fully appreciate the value of the Bluetooth and short-range core business that's driving all the revenues today," he said. "Beyond that, I think the value gap upside, the big opportunity, is to understand that this (cellular IOT) product that is selling at a 10 times higher average selling price than the main products at Nordic today is going to be sold to the same customers." DNB estimates that if just 10% of Nordic's current Bluetooth customers were to purchase the new cellular IOT products, the company could double its revenue base. Bjørnsen believes that with wireless connectivity currently only penetrating a small fraction of the total addressable market, there is scope for the company's IOT products to transition from niche to ubiquity, transforming Nordic into a "multi-billion dollar" company. He expects the first data points on the new products to prove to the market that the cellular business is gaining traction, and will take Nordic to a "totally new level." "So I think if you price them on reported earnings multiples, then you're basically putting a negative value on the center opportunity, which is something they've been investing in for the last seven years," he said. "And I think that's why the share price is still at a low level compared to the current underlying value."
Sefa Ozel | E+ | Getty Images
One of Europe's best-performing stocks is up 100% since the start of the year, and an analyst says its rise over the coming years could be stratospheric.
NEXT PRO TALK
4 Days Remaining
Wed, Apr 5 2023 - 1:15pm