Pending Acquisition Will Expand US Manufacturing And Diverse Markets

Key Takeaways

• Acquisition-driven capacity growth, technological innovation, and strategic government partnerships position SkyWater for revenue expansion, improved margins, and stronger market resilience.
  
• Transition toward higher-margin, recurring business and entry into next-gen tech segments support long-term growth and greater earnings visibility amid short-term funding delays.
  
• SkyWater faces significant revenue instability, execution challenges, competitive pressures, and cost risks due to reliance on government contracts, limited scale, and industry consolidation.

Catalysts

Operates as a pure-play technology foundry that offers semiconductor development, manufacturing, and packaging services in the United States.

• The pending acquisition of Infineon’s Fab 25 in Austin will substantially increase SkyWater’s domestic 200mm capacity, allowing entry into high-growth segments like automotive, medical devices, industrial sensing, and defense, while also enabling dual sourcing for critical semiconductors; this is expected to drive both immediate revenue and cash flow through a $1B supply agreement and boost long-term top-line growth and margin expansion from increased scale and customer diversification.
  
• The ramp of SkyWater’s proprietary ThermaView platform, focused on advanced thermal imaging (a $9B market), along with increasing conversions from ATS to Wafer Services, signals a strategic shift toward higher-margin, more predictable, and recurring revenues, likely to improve gross margins and overall earnings visibility as the mix transitions from legacy to innovation-driven business.
  
• SkyWater’s U.S.-centric manufacturing, deepening relationships with government agencies (DoD, NASA), and trusted accreditation position it as a preferred partner for national security and supply chain resilience, especially as reshoring and “secure foundry” requirements accelerate—supporting stable, premium-priced long-term contracts that positively impact revenue stability and net margins.
  
• Strong momentum in quantum computing and advanced compute, underpinned by co-development partnerships with companies like D-Wave and Si-Quantum, places SkyWater at the forefront of enabling commercialization of breakthrough technologies in AI and next-gen information processing, with the potential to drive new, high-value top-line growth streams and higher-margin revenue as these markets scale.
  
• The expected release of delayed government program funding in the second half of 2025, combined with large investments in SkyWater’s capacity and packaging facility upgrades, is anticipated to produce a sharp revenue rebound, significant gross margin expansion into the 30% range, and a shift to positive EPS and strong EBITDA in the back half and beyond, addressing near-term undervaluation rooted in current funding/transitory delays rather than fundamental business weakness.

SkyWater Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SkyWater Technology's revenue will grow by 8.6% annually over the next 3 years.
• Analysts are not forecasting that SkyWater Technology will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate SkyWater Technology's profit margin will increase from -2.6% to the average US Semiconductor industry of 13.8% in 3 years.
• If SkyWater Technology's profit margin were to converge on the industry average, you could expect earnings to reach $57.2 million (and earnings per share of $1.17) by about July 2028, up from $-8.4 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 12.6x on those 2028 earnings, up from -55.9x today. This future PE is lower than the current PE for the US Semiconductor industry at 31.1x.
• Analysts expect the number of shares outstanding to grow by 1.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.02%, as per the Simply Wall St company report.

SkyWater Technology Future Earnings Per Share Growth

Risks

• Heavy reliance on U.S. government contracts and programs exposes SkyWater to significant revenue and earnings volatility due to ongoing and unpredictable government budget negotiations, delayed funding, and shifting policy priorities, potentially causing instability in top-line growth and profitability.
  
• The company’s scale remains modest, and with major expansion tied to the pending acquisition of Infineon’s Fab 25, there is material execution risk surrounding integration, ramp-up timelines, and achieving targeted utilization and cost structure, which could depress gross margins and cash flow if synergies are slower to materialize.
  
• The switch from legacy to new Wafer Services products (e.g., ThermaView) introduces lumpiness and uncertainty in revenue growth as commercialization and ramp timelines are highly dependent on a small set of lead customers, raising the risk of near
• to medium-term underutilization and margin compression.
  
• The semiconductor industry is consolidating, with major foundries and integrated device manufacturers expanding aggressively into specialty and mature nodes; SkyWater’s comparatively limited capacity and R&D resources could constrain its ability to compete for larger or more international customers, ultimately leading to downward pressure on market share, pricing, and net margins.
  
• Exposure to increasing input costs and regulatory risks—such as tariffs, environmental regulations, and supply chain disruptions—could exacerbate cost pressures for a smaller company like SkyWater and limit its ability to fund innovation or capacity expansion competitively, impacting both gross margins and long-term earnings growth.

Valuation

• The analysts have a consensus price target of $11.0 for SkyWater Technology 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 $12.0, and the most bearish reporting a price target of just $8.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $414.6 million, earnings will come to $57.2 million, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 10.0%.
• Given the current share price of $9.78, the analyst price target of $11.0 is 11.1% 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.