Revenue is growing again and AI power demand is rising, but at $79.41 the stock costs about 21 times my 2027 earnings estimate of $3.79 a share. I see a $84 target, so it tracks the market.
Key points
- $3.79 a share is my 2027 earnings estimate, up from about $2.40 a year earlier on a recovery in sales and margins.
- 21 times 2027 earnings is what the $79.41 price costs; I think that is fair.
- +6% is the gap from the price to my $84 target, so Hold.
The call
The price already requires the recovery to reach management's path. At $79.41 the stock costs about 21 times my 2027 earnings. Revenue grew 9% in the latest quarter after three years of decline.
Quarterly revenue ($ billions)Source: SEC XBRL company facts, quarters to Jul 3, 2026
I believe the recovery is real but mostly expected. Factory use rose to 83% and AI power sales should double in 2027. Prices are rising only to cover costs, so margins reach 24% by 2027, short of management's longer-term 38% target.
Valuation
| Driver | Estimate |
|---|
| 2026 revenue (management) | $6.5 billion |
| 2027 revenue, 13% growth | $7.3 billion |
| Operating margin | 24% |
| Earnings after 15% tax, 395 million shares | $3.79 a share |
| Multiple | 22 times |
| Target | $84 |
A cyclical chip maker earns a middle multiple when margins are still below their prior peak. The cash Synaptics deal ($5.7 billion) adds debt but no new shares, which removes dilution. Upside is about 6% against a stock that moved 22% either way in options pricing, so the odds do not justify a buy.
Risks
- Car and factory demand stalls: watch distributor inventory, now 10.1 weeks, and guidance.
- Deal debt and integration strain: watch leverage against the 4 times covenant limit.
- AI power sales come in short: watch quarterly AI revenue against the $500 million 2026 target.
What would change my mind
Quarterly operating margin above 20% with revenue over $1.8 billion would move me to Buy; revenue falling below $1.55 billion would move me to Sell.