mmWave Expansion Will Unlock Fixed Wireless And Defense Opportunities

Key Takeaways

• Expanding mmWave into new markets and applications is anticipated to enhance customer base and grow revenue through diversification.
  
• Growth in fixed wireless access and military applications, along with tech-neutral BEAD funding, promises substantial revenue opportunities for Peraso.
  
• Revenue stability is at risk due to product lifecycle end, dependency on large orders, delayed military market entry, and uncertain tech rollout impacts.

Catalysts

A fabless semiconductor company, develops, markets, and sells semiconductor devices and antenna modules in the United States, Hong Kong, Taiwan, and internationally.

• The expansion of Peraso's mmWave technology into new geographic markets and end market applications is expected to broaden its customer base. This diversification is likely to contribute to revenue growth by enhancing market penetration opportunities.
  
• The increasing demand for fixed wireless access driven by advancements in 5G technology presents a substantial growth opportunity for Peraso. As fixed wireless access captures a growing market share, it is expected to contribute significantly to Peraso's revenue.
  
• The evolving government policy surrounding the BEAD program, with a shift towards tech-neutral funding, is expected to increase the adoption of Peraso's mmWave solutions. This expansion could potentially boost revenue through increased customer orders.
  
• The emerging opportunities in tactical defense and military applications provide a promising avenue for growth. Peraso's 60 gigahertz mmWave technology's capability to meet military demands suggests potential future revenue streams.
  
• The recent receipt of a significant purchase order from a strategic customer indicates strengthening demand and momentum for Peraso's mmWave products. Fulfilling these orders is expected to impact revenue positively and improve earnings throughout 2025.

Peraso Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Peraso's revenue will grow by 10.2% annually over the next 3 years.
• Analysts are not forecasting that Peraso will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Peraso's profit margin will increase from -73.6% to the average US Semiconductor industry of 14.6% in 3 years.
• If Peraso's profit margin were to converge on the industry average, you could expect earnings to reach $2.9 million (and earnings per share of $0.48) by about May 2028, up from $-10.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.4x on those 2028 earnings, up from -0.4x today. This future PE is lower than the current PE for the US Semiconductor industry at 22.9x.
• 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 9.06%, as per the Simply Wall St company report.

Peraso Future Earnings Per Share Growth

Risks

• The end-of-life of Peraso's memory IC products means a loss of a significant revenue stream in the near term, which may create a gap before other product lines can compensate, impacting future revenues.
  
• Heavy reliance on a small number of large orders creates vulnerability to order cancellations or delays, impacting short-term revenue stability and predictability.
  
• While Peraso is expanding into military applications, these markets typically have long sales cycles and high barriers to entry, which could delay revenue generation from these sectors and impact future earnings.
  
• Ongoing uncertainties regarding the rollout and impact of the BEAD program funding might delay expected boosts in sales of mmWave technology, thus affecting projected revenue growth timelines.
  
• While Peraso reports increased engagement in their business funnel, these engagements might not convert to significant revenue if not all customers proceed to full-scale production, affecting overall revenue expectations.

Valuation

• The analysts have a consensus price target of $3.457 for Peraso based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $3.75, and the most bearish reporting a price target of just $3.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $19.5 million, earnings will come to $2.9 million, and it would be trading on a PE ratio of 9.4x, assuming you use a discount rate of 9.1%.
• Given the current share price of $0.93, the analyst price target of $3.46 is 73.1% 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.