Connected Audio And Mixed-Signal Solutions Will Fuel Secular Demand

Key Takeaways

• Cirrus Logic's audio leadership and expanding product design wins are driving growth, reducing reliance on smartphones and creating a unique competitive moat in premium and emerging sectors.
  
• Strategic supply chain diversification and innovation in new markets position the company to sidestep risks while supporting above-average long-term margins and recurring revenue streams.
  
• Extreme reliance on a single customer and core smartphone segment exposes Cirrus Logic to revenue volatility, margin pressure, and heightened risk from supply chain and regulatory challenges.

Catalysts

A fabless semiconductor company, develops low-power high-precision mixed-signal processing solutions in China, the United States, and internationally.

• Analyst consensus anticipates sustained revenue from Cirrus Logic's flagship smartphone audio leadership and new boosted amplifier/smart codec launches, but these products are positioned to capture significantly higher share as demand for premium audio in smartphones and connected devices rapidly escalates, which could accelerate both revenue and gross margin expansion much faster than expected.
  
• While analysts broadly agree that geographic supply chain diversification will help protect margins, Cirrus Logic's proactive investments could enable it to completely sidestep future tariff shocks and geopolitical risk, positioning the company to increase operating leverage and maintain above-industry average profitability in a fragmented global environment.
  
• Cirrus Logic's expanding design wins in mainstream laptops, rapid SKU proliferation with major PC OEMs, and ongoing reference design penetration indicate the company is set to compound annual double-digit laptop revenues for multiple years, driving outsized top-line growth and diluting customer concentration risk from smartphones.
  
• As digital content consumption intensifies across gaming, streaming, AR/VR, and wearables, Cirrus Logic's best-in-class audio ICs and ultra-low power design provide a unique moat that is well-matched to structural increases in per-device audio ASPs, supporting long-term margin improvement as device complexity and premiumization accelerate.
  
• Continued innovation and new products in areas such as automotive infotainment, industrial imaging, and advanced timing products tap into multi-billion dollar new addressable markets, setting up a pipeline for high-margin, diversified recurring revenue streams beyond consumer smartphones, which could materially boost earnings and re-rate the company's multiples over time.

Cirrus Logic Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Cirrus Logic compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Cirrus Logic's revenue will grow by 3.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 17.5% today to 17.7% in 3 years time.
• The bullish analysts expect earnings to reach $369.9 million (and earnings per share of $6.85) by about July 2028, up from $331.5 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 22.9x on those 2028 earnings, up from 16.1x today. This future PE is lower than the current PE for the US Semiconductor industry at 30.9x.
• Analysts expect the number of shares outstanding to decline by 3.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.56%, as per the Simply Wall St company report.

Cirrus Logic Future Earnings Per Share Growth

Risks

• With 89 percent of revenue in fiscal 2025 coming from its largest customer, Cirrus Logic faces extreme customer concentration risk; any shift in supplier strategy, insourcing, or reduction in purchasing from this customer could cause sharp declines in revenue and volatility in future earnings.
  
• Cirrus Logic's core business remains highly dependent on the smartphone sector, which is experiencing longer product cycles and increased commoditization of audio components, pressuring margins and heightening the risk of revenue stagnation and gross margin contraction as industry dynamics evolve.
  
• Despite efforts to diversify, revenues from new markets like laptops, automotive, and the general market portfolio are still a small fraction of overall sales, limiting the company's ability to offset potential downturns in its primary markets and making long-term revenue growth more susceptible to market shifts.
  
• Ongoing global supply chain tensions, tariffs, and rising inventory levels have the potential to disrupt procurement, increase input costs, and lead to inventory write-downs, negatively impacting profitability and free cash flow in periods of volatility.
  
• Increased regulatory and investor scrutiny on sustainability, as well as a heavier compliance burden for data privacy and device security, could necessitate higher R&D and compliance spending, placing additional pressure on net margins and limiting available resources for innovation and expansion.

Valuation

• The assumed bullish price target for Cirrus Logic is $140.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Cirrus Logic'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 $140.0, and the most bearish reporting a price target of just $90.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $2.1 billion, earnings will come to $369.9 million, and it would be trading on a PE ratio of 22.9x, assuming you use a discount rate of 9.6%.
• Given the current share price of $104.31, the bullish analyst price target of $140.0 is 25.5% 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.