Rambus Inc. (NASDAQ: RMBS) is a chip designer and producer that licenses its technology and architecture to semiconductor companies. Like Arm Holdings Inc. (NASDAQ: ARM), Rambus also licenses and collects royalties on the chips using their memory architecture and any of its over 2,700 patents and applications.
Rambus also offers DDR4 and DDR5 memory interface modules and chipset solutions. DDR5 has twice the capacity, improved efficiency, and lower power consumption of DDR4, which improves the battery life of mobile devices. DDR5 is more expensive than DDR4 and not as widely available.
Artificial intelligence (AI) deployment requires high bandwidth and fast memory speeds, which DDR5 RAM is ideally suited for. DDR5 will eventually be the standard, which means an extended upgrade cycle is in the works. This is a boon to Rambus, as it offers full DDR5 memory interface chipsets.
Some of their notable clients in the computer and technology sector include NVIDIA Co. (NASDAQ: NVDA), Advanced Micro Devices Inc. (NASDAQ: AMD), and Micron Technology Inc. (NASDAQ: MU).
Micron Technologies Starts Its AI Boom: Can It Pull Rambus Along With It?
Due to AI deployment, high-bandwidth memory (HBM) demand is driving Micron Technology’s business. Micron experienced a 93.3% YoY revenue surge in its fiscal fourth quarter of 2024, driven by AI and data center growth. Micron’s HBM3E delivers 50% higher DRAM capacity and 30% less power consumption to advance generative AI technology. Since both Micron and NVIDIA license Rambus IP, the momentum would flow into Rambus's revenue performance. Well, it hasn't been a dramatic surge yet.
Rambus Is Waiting for Its AI Boom
On July 29, 2024, Rambus reported a second quarter of 2024 EPS of 33 cents. Revenues rose 10.3% to $132.10 million, missing consensus estimates of $139 million. Product revenue jumped 13% sequentially to $56.7 million but grew just 3% YoY from $55 million last year. Royalty revenue surged 38% YoY to $56.4 million. Rambus closed the quarter with $432.9 million in cash and cash equivalents. So far, Rambus isn't setting the world on fire with its revenue growth. Its guidance is also rather tame.
For the third quarter of 2024, Rambus expects license billings between $60 and $66 million, product revenue between $62 million and $68 million, and contract revenue between $17 million and $23 million. The license billings indicate double-digit growth, which is where the AI boom acceleration could happen. Investors will want to stay alert when Rambus releases its third-quarter earnings on Oct. 28, 2024, after the close. Consensus estimates are for EPS of 52 cents and revenue of $147.67 million.
Will the AI Boom Show Up in Its Licensing and Royalty Revenue?
On Sept. 4, 2024, Rambus announced the industry's first HBM4 Memory Controller IP to accelerate AI workloads. Its solution supports the advanced feature set of HBM4 devices, including demanding memory bandwidth requirements for next-gen AI GPUs and accelerators. Rambus Senior Vice President of Silicon IP, Neeraj Paliwal, commented, "With Large Language Models (LLMs) now exceeding a trillion parameters and continuing to grow, overcoming bottlenecks in memory bandwidth and capacity is mission critical to meeting the real-time performance requirements of AI training and inference.”
RMBS Stock Attempts Descending Triangle Breakout
A descending triangle is a bearish pattern comprised of a descending upper trendline converging with a flat-bottom lower trendline. The breakdown occurs when the stock falls through the lower trendline support. A breakout occurs when the stock surges through the upper trendline resistance.
RMBS broke out of its descending triangle when it surged through $41.22 on Oct. 9, 2024, as it peaked at $45.59 before pulling back. Shares have been falling back down towards the $40.22 daily anchored VWAP support. The daily RSI peaked at the 65-band and is falling to the 46-band. Fibonacci (Fib) pullback support levels are at $40.20, $37.66, $34.77, and $27.92.
Rambus’s average consensus price target is 88% higher at $77.75, and its highest analyst price target is $85.00. Four analysts give it Buy ratings. The stock trades at 29.2x forward earnings.
Actionable Options Strategies: Bullish investors can consider using cash-secured puts to buy RMBS at the Fib pullback support levels for entry and write covered calls to execute a wheel strategy for income.
Bullish options investors can limit maximum downside and profit from modest upside gains for less capital than owning the stock by implementing a bullish call debit spread.
