AI Infrastructure Demand And Defense Spending Will Drive Long Term Upside Potential

Catalysts

About Aeluma

Aeluma develops high performance compound semiconductor solutions that can be manufactured at scale for defense, AI infrastructure and advanced imaging markets.

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

• Growing global demand for AI infrastructure and data center interconnects, including co packaged optics and massively parallel optical links, positions Aeluma’s high speed optical interconnect platform to transition from funded R&D into multi million unit commercial volumes, supporting sustained revenue growth and operating leverage.
• Rising defense and aerospace spending on advanced sensing, communications and quantum enabled systems is aligning with Aeluma’s government backed programs, creating a path for high margin, lower volume production that can lift gross margins and accelerate the move toward positive earnings.
• Industry wide migration to larger wafer sizes and CMOS compatible compound semiconductor manufacturing gives Aeluma’s 300 millimeter capable platform a structural cost and scalability advantage that should support better unit economics and long term expansion in net margins as volumes ramp.
• Expanding customer funnel, with 20 active commercial engagements and plans to roughly double business development and technical headcount in fiscal 2026, increases the probability of multiple design wins across defense, AI and consumer markets, broadening the revenue base and improving earnings visibility.
• Capital light manufacturing strategy that leverages multiple U.S. foundry, packaging and test partners enables Aeluma to scale production quickly without heavy capex, which should moderate cash burn and support margin expansion as commercial product revenue begins to overtake R&D contract revenue.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Aeluma's revenue will grow by 124.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -68.0% today to 14.2% in 3 years time.
• Analysts expect earnings to reach $9.0 million (and earnings per share of $0.82) by about December 2028, up from $-3.8 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 83.5x on those 2028 earnings, up from -76.1x today. This future PE is greater than the current PE for the US Semiconductor industry at 38.0x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.43%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The transition from government funded R&D contracts to meaningful commercial product adoption may take longer than expected, especially as Aeluma’s disruptive technology requires customers to redesign future generation systems rather than slot in a drop in replacement. This could delay revenue growth and keep earnings negative for longer than anticipated, pressuring valuation multiples.
• Aeluma plans to approximately double headcount and ramp wafer fabrication activity while revenue guidance for fiscal 2026 is only modestly above 2025 levels. If commercial wins lag these investments, operating expenses could rise faster than sales, compressing net margins and pushing out the path to sustainable positive earnings.
• The strategy relies heavily on outsourced U.S. foundry, packaging and test partners, and any capacity constraints, qualification delays or misalignment with customers’ preferred fabs could slow volume ramp in AI infrastructure, defense and mobile markets. This could limit the scale up in product revenue and associated gross margin expansion.
• Key end markets such as mobile and consumer electronics are described as very volatile and highly cost sensitive. Even if Aeluma’s technology is technically superior, pricing pressure or rapid shifts in device demand could cap achievable average selling prices, resulting in lower than expected revenue and constrained net margin improvement over the long term.

Valuation

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

• The analysts have a consensus price target of $25.5 for Aeluma 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 $63.3 million, earnings will come to $9.0 million, and it would be trading on a PE ratio of 83.5x, assuming you use a discount rate of 10.4%.
  
• Given the current share price of $16.14, the analyst price target of $25.5 is 36.7% 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.