Digital Connectivity And Edge AI Will Spark A Secular Boom

Key Takeaways

• Rapid adoption of CEVA's scalable Edge AI and wireless IP positions the company for outsized royalty and licensing-driven growth above current expectations.
  
• Expansion into data center AI and next-gen connectivity creates new high-margin revenue streams, while strong customer stickiness drives long-term earnings potential.
  
• Rising competitive threats, industry shifts toward in-house designs, and reliance on key customers could undermine CEVA's market position, revenue stability, and long-term growth prospects.

Catalysts

Provides silicon and software intellectual property (IP) solutions to semiconductor and original equipment manufacturer companies in the United States, Europe, the Middle East, the Asia Pacific, and internationally.

• Analyst consensus recognizes growing adoption of CEVA's Edge AI NPUs as a catalyst for future royalty growth, but this may be significantly understated: CEVA's rapid customer wins and unique scalability across both consumer and infrastructure edge markets indicate royalties per device could grow at an even faster pace, potentially compounding revenue and gross margin uplift as AI penetration accelerates industry-wide.
  
• Analysts broadly agree that consumer IoT shipments and wireless connectivity IP are set to drive ongoing licensing and royalty upside; however, the magnitude could be far greater-record-breaking sequential and year-over-year growth in both Wi-Fi 6 (up 113 percent) and cellular IoT (up 66 percent) hints at a multi-year supercycle of device proliferation, which could result in licensing and royalty revenue growth well above current forecasts.
  
• CEVA's deepening push into data center and cloud AI inference markets remains an overlooked catalyst, as its low-power, high-throughput NPUs offer compelling solutions to evolving infrastructure bottlenecks-opening an entirely new, high-value royalty stream that could structurally elevate long-term margins and earnings power.
  
• The adoption curve for next-generation Bluetooth and Wi-Fi standards (such as Bluetooth 7.0 and advanced Wi-Fi 6/6E) may be underestimated by the market; as billions of new edge devices begin to rely on these protocols, CEVA's portfolio is positioned to capture a disproportionate share of these design cycles, providing recurring high-margin royalty growth and expanding installed base.
  
• High customer stickiness and multi-IP adoption strategies-evidenced by repeated wins with top-tier OEMs and integration of multiple CEVA technologies in single chips-point to steadily increasing average revenue per customer and enhanced EPS compounding, as cross-selling drives scale advantages well beyond the traditional mobile customer base.

CEVA Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on CEVA compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming CEVA's revenue will grow by 15.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -9.5% today to 20.9% in 3 years time.
• The bullish analysts expect earnings to reach $34.1 million (and earnings per share of $1.42) by about August 2028, up from $-10.1 million 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 37.6x on those 2028 earnings, up from -52.7x today. This future PE is greater than the current PE for the US Semiconductor industry at 33.0x.
• Analysts expect the number of shares outstanding to grow by 1.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.1%, as per the Simply Wall St company report.

CEVA Future Earnings Per Share Growth

Risks

• Intensifying competition from integrated chip vendors and open-source IP solutions threatens to pressure CEVA's pricing power, as the text itself highlights the rapid evolution and fierce race in Edge AI and connectivity; this could compress gross margins and reduce future profitability.
  
• The increasing trend of major semiconductor companies developing in-house intellectual property raises strategic risk for CEVA's core royalty and licensing business, potentially leading to long-term declines in both licensing revenue and royalty streams.
  
• CEVA's heavy reliance on a few high-volume customers in the mobile and IoT segments makes the company vulnerable to loss of key accounts or reduced order volumes, which could cause significant disruption to revenue and cash flow.
  
• The semiconductor industry is rapidly moving toward chiplet architectures and greater system-on-chip integration, which may reduce demand for standalone IP cores like CEVA's, impacting both sales volume and market share over time.
  
• Ongoing geopolitical risks-including potential trade frictions between the U.S. and China, where CEVA's customers may have significant operations-could disrupt supply chains and restrict customer access, leading to volatility in revenues and earnings.

Valuation

• The assumed bullish price target for CEVA is $40.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of CEVA'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 $40.0, and the most bearish reporting a price target of just $21.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $162.8 million, earnings will come to $34.1 million, and it would be trading on a PE ratio of 37.6x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of $22.22, the bullish analyst price target of $40.0 is 44.4% 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.