High-Definition Displays And AI Will Redefine Secular Connectivity Markets

Key Takeaways

• Expansion into data center and AI markets, strengthened by acquisitions and IP, positions Parade to outpace consensus with higher growth and profitability potential.
  
• Deep integration with key customers and industry-leading high-speed products support premium margins, greater pricing power, and improved earnings resilience amid rising industry complexity.
  
• Dependence on a few major customers, commoditization, geopolitical risks, and limited diversification threaten long-term profitability and revenue growth for the core interface IC business.

Catalysts

Operates as a fabless semiconductor company in South Korea, China, Taiwan, Japan, and internationally.

• While analyst consensus anticipates that the Spectra7 acquisition will bolster Parade's expansion into data center and AI markets, a more bullish view is that Parade can use its robust financial health and expanded IP portfolio to become the standard-bearer for high-speed connectivity, capturing a disproportionate share of the explosive growth in data center infrastructure and unlocking both substantial revenue acceleration and meaningful net margin expansion-far beyond what analysts are modeling.
  
• Analysts broadly agree that Parade's focus on high-speed products like USB4, PCIe, and high-speed cables will drive growth, but this likely understates the potential for Parade to dominate the end-to-end USB4 ecosystem as an early, full-solution provider across major platforms, positioning the company to benefit from multi-port proliferation per device and resulting in a step-function increase in both average selling prices and sustainable gross margins.
  
• Accelerating global adoption of high-definition and OLED displays across notebooks, tablets, and other devices is set to create a structural uptrend in Parade's addressable market, with deep integration at Tier 1 customers and new project wins supporting multi-year, above-market revenue growth and reducing customer concentration risk.
  
• Parade's aggressive R&D into next-gen signal conditioning ICs and its validation of high-speed IP on advanced process nodes (down to 6 nanometer) positions it to win high-value, customized interface chip projects for data center, automotive, and industrial markets, supporting an ongoing mix shift toward premium margin products.
  
• The intensifying complexity of semiconductor integration and customers' increasing requirements for energy efficiency and localized supply chains are strengthening Parade's barriers to entry and pricing power, with its Asia-Pacific footprint and manufacturing relocation abilities enabling exceptional earnings resilience and new design-win opportunities, even as industry uncertainty rises.

Parade Technologies Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Parade Technologies compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Parade Technologies's revenue will grow by 15.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 16.8% today to 18.3% in 3 years time.
• The bullish analysts expect earnings to reach NT$4.7 billion (and earnings per share of NT$63.5) by about September 2028, up from NT$2.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.2x on those 2028 earnings, down from 21.7x today. This future PE is lower than the current PE for the TW Semiconductor industry at 31.1x.
• Analysts expect the number of shares outstanding to decline by 1.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.08%, as per the Simply Wall St company report.

Parade Technologies Future Earnings Per Share Growth

Risks

• Parade Technologies faces ongoing price pressure in its traditional display interface IC business, with sustained competition and commoditization leading to the need to lower average selling prices, which could compress gross margins and reduce overall profitability in the long term.
  
• The company's strategy is still heavily dependent on winning and maintaining design wins with a concentrated base of Tier 1 OEM customers; any loss of a major client or a shift in supplier preferences could have a material negative impact on Parade Technologies' revenue growth.
  
• Rising geopolitical tensions are causing tariffs and increased costs related to supply chain diversification and possible relocation of manufacturing to locations like the US, which could inflate the company's cost structure, reduce gross margins, and require further capital expenditure.
  
• There is a growing risk that large consumer electronics brands and OEMs will continue to pursue vertical integration and in-house chip design, reducing the future external market opportunity for Parade's interface and signal-processing ICs and thereby limiting future revenue growth.
  
• Parade's limited diversification beyond display and high-speed interface ICs exposes the company to both secular industry risks such as deceleration of hardware innovation in consumer devices, and the transition of industry value-add towards software or system-level differentiation, potentially stagnating long-term earnings growth.

Valuation

• The assumed bullish price target for Parade Technologies is NT$866.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Parade Technologies's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$866.0, and the most bearish reporting a price target of just NT$450.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be NT$25.8 billion, earnings will come to NT$4.7 billion, and it would be trading on a PE ratio of 17.2x, assuming you use a discount rate of 8.1%.
• Given the current share price of NT$784.0, the bullish analyst price target of NT$866.0 is 9.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.