EV And AI Data Center Adoption Will Drive Long Term Power Semiconductor Demand

Catalysts

About Ideal Power

Ideal Power develops and commercializes B-TRAN based power semiconductor devices that enable high efficiency, bidirectional power switching for automotive, data center, industrial and grid applications.

What are the underlying business or industry changes driving this perspective?

• Rising adoption of 800 volt architectures in EVs and fast DC charging is expanding the addressable market for B-TRAN contactors and protection devices, which is expected to support a multi year ramp in product revenue and improve operating leverage as programs move from evaluation to series production.
• Global growth in AI intensive data centers and higher voltage rack architectures is increasing demand for solid state circuit protection and high efficiency power conversion, positioning B-TRAN based designs to capture recurring OEM volumes and potentially drive top line growth and gross margin expansion.
• Ongoing electrification of industrial infrastructure and grid modernization, including microgrids and bidirectional power flow between grid and distributed storage, aligns directly with B-TRAN strengths in bidirectionality and low conduction losses, supporting a broader product portfolio and more diversified revenue streams.
• Scaling to higher power rated discrete devices with substantial tested headroom enables penetration into larger, higher value applications and improves product competitiveness, which may translate into higher average selling prices and better gross margins as volumes ramp.
• Expanding global commercialization efforts, including direct sales presence in Asia, multiple foundry and packaging partners, and a growing patent estate, reduces certain execution risks and may support pricing power, which can help sustain healthy net margins and earnings growth as the business scales from a low revenue base.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Ideal Power's revenue will grow by 557.1% annually over the next 3 years.
• Analysts are not forecasting that Ideal Power will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Ideal Power's profit margin will increase from -26141.1% to the average US Electrical industry of 11.8% in 3 years.
• If Ideal Power's profit margin were to converge on the industry average, you could expect earnings to reach $1.4 million (and earnings per share of $0.16) by about December 2028, up from $-11.3 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 87.5x on those 2028 earnings, up from -3.3x today. This future PE is greater than the current PE for the US Electrical industry at 31.4x.
• Analysts expect the number of shares outstanding to grow by 2.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.1%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Despite large secular growth in EVs, AI data centers and grid modernization, Ideal Power is still at the evaluation and prototype stage with only modest current revenue. Any delay or failure in converting Stellantis and other marquee programs into volume orders could leave revenue growth far below expectations and keep earnings deeply negative.
• The company is deliberately cautious in rating and qualifying its new B TRAN device and is still undergoing third party automotive qualification. Any reliability issues or slower than expected engineer adoption of a novel architecture versus established IGBTs and silicon carbide solutions could compress gross margins and postpone the path to positive net margins.
• Ideal Power is increasing wafer fabrication spending, hiring and R and D while generating limited sales. With cash and cash equivalents of 8.4 million dollars and an expected 2025 cash burn of roughly 10 million dollars, slower commercialization or program slippage could force dilutive capital raises that pressure earnings per share and the share price.
• Global power semiconductor markets are competitive. If incumbent silicon and silicon carbide vendors respond with lower cost or better integrated solutions as 800 volt and high power architectures proliferate, Ideal Power may have to discount pricing or cede share, limiting long term revenue scale and dampening operating leverage.
• The company is leaning heavily on Asia for both manufacturing and early commercial traction. Any regional slowdown, policy change, or customer preference for in house or local technologies could reduce the addressable pipeline and constrain both top line growth and eventual expansion in operating margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $10.75 for Ideal Power based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $12.2 million, earnings will come to $1.4 million, and it would be trading on a PE ratio of 87.5x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of $4.33, the analyst price target of $10.75 is 59.7% 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.