Hybrid AI And Sovereign Infrastructure Risks Will Eventually Support Healthier Margins

Catalysts

About Blaize Holdings

Blaize Holdings develops energy efficient, programmable AI hardware and software platforms for practical, hybrid AI deployments across cloud and edge environments.

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

• Although large scale AI infrastructure build outs for smart cities and public safety across Asia and the Middle East support multiyear deployments, heavy initial reliance on third party GPUs in programs like Starshine could delay the shift to higher margin, GSP-centric architectures, limiting gross margin recovery and earnings expansion.
• Despite growing demand for sovereign AI infrastructure as governments seek control over data and workloads, complex procurement cycles and regulatory requirements in regions such as Saudi Arabia and India may extend deployment timelines, pushing out the revenue ramp and slowing operating leverage.
• While the next generation low power, programmable GSP targeting broader workloads including language models expands Blaize's addressable market, prolonged R and D cycles, NRE costs and potential tape out delays could pressure adjusted EBITDA and postpone margin benefit from higher value silicon.
• Although the hybrid AI model that combines GPUs and GSPs offers clear total cost of ownership advantages for tier 2 cloud providers and data centers, customer migration from GPU heavy to GSP heavy configurations may proceed cautiously, tempering the pace of revenue mix shift and net margin improvement.
• While rising urban camera density and industrial automation use cases increase long term demand for vision and edge AI, customers' pilot projects and proof of concept phases could remain lengthy, slowing conversion of the current pipeline into recognized revenue and delaying sustained earnings visibility.

Assumptions

This narrative explores a more pessimistic perspective on Blaize Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Blaize Holdings's revenue will grow by 178.1% annually over the next 3 years.
• The bearish analysts are not forecasting that Blaize Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Blaize Holdings's profit margin will increase from -1415.5% to the average US Semiconductor industry of 15.3% in 3 years.
• If Blaize Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $48.8 million (and earnings per share of $0.36) by about December 2028, up from $-210.3 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 22.5x on those 2028 earnings, up from -1.2x today. This future PE is lower than the current PE for the US Semiconductor industry at 37.0x.
• The bearish 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 10.47%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Dependence on a small number of large multi-year infrastructure contracts such as Starshine, Yotta and emerging Middle Eastern sovereign AI programs exposes Blaize to project delays, extended proof of concept cycles and political or budgetary shifts, which could defer or reduce the anticipated $160 million of contracted demand and weaken long-term revenue growth.
• The near-term spike in revenue is heavily tied to GPU-heavy server shipments under Starshine, and management acknowledges gross margin compression from 59% to 15%, so any slowdown or customer hesitation in transitioning to higher margin GSP-heavy architectures could leave the business structurally low margin and limit improvement in gross margin and net earnings.
• Execution risk around next-generation silicon is elevated given rising nonrecurring engineering, IP and foundry costs spread over 20 to 24 months, so technical setbacks, cost overruns or slower adoption of broader workloads such as language models could increase operating expenses faster than expected and delay the path to positive EBITDA and net income.
• The global AI hardware market is becoming more competitive, and although Blaize emphasizes programmability and total cost of ownership, any acceleration of rival solutions that match its performance per watt or ecosystem strength could erode pricing power and win rates, pressuring revenue growth and constraining future operating leverage.
• While management highlights robust Tier 2 cloud and sovereign AI demand, these customers are highly sensitive to return on investment and energy efficiency, so macro slowdowns, AI budget rationalization or regulatory changes affecting large camera and smart city deployments could dampen long-term infrastructure build-outs, reducing utilization of Blaize platforms and limiting sustainable revenue scale and earnings expansion.

Valuation

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

• The assumed bearish price target for Blaize Holdings is $6.0, which represents up to two standard deviations below the consensus price target of $7.8. This valuation is based on what can be assumed as the expectations of Blaize Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $10.0, and the most bearish reporting a price target of just $6.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $319.5 million, earnings will come to $48.8 million, and it would be trading on a PE ratio of 22.5x, assuming you use a discount rate of 10.5%.
  
• Given the current share price of $2.28, the analyst price target of $6.0 is 62.0% 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.