Accelerated Digital Transformation And US Reshoring Will Spur Chip Growth

Key Takeaways

• Rapid integration of proprietary technologies and secure foundry capabilities position SkyWater for accelerated customer onboarding, platform wins, and premium pricing power in advanced compute markets.
  
• Expanding domestic manufacturing and strategic leadership in specialty analog and packaging will drive multi-year, above-market revenue growth and increasingly predictable, high-margin income streams.
  
• Margin compression, customer concentration, technology shifts, high capital needs, and uncertain government funding threaten SkyWater's profitability, stability, and competitive position.

Catalysts

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

• While analyst consensus expects Fab 25 to drive substantial revenue and cash flow growth with a $1 billion supply agreement, the market is dramatically underestimating the upside from rapid integration of Infineon's high-voltage, copper-based IP, which will accelerate new customer onboarding and platform wins, likely resulting in Fab 25 utilization and revenue outperformance far ahead of current projections and yielding earlier and stronger gross margin expansion.
  
• Analysts broadly agree SkyWater's quantum computing and advanced packaging platforms can open new high-margin revenue streams, but this significantly underappreciates the network effects from being the only U.S.-based pure-play foundry positioned as a turnkey, secure provider at scale; as quantum and AI-driven compute proliferates, SkyWater stands to become the de facto supplier for both government and commercial next-gen compute initiatives, unlocking premium pricing power and sustained earnings growth.
  
• The industry-wide migration of IDMs and mature node players toward hybrid/fabless models, combined with escalating U.S. government actions to reduce supply chain risk, will force a wave of onshoring and dual sourcing from customers like NXP, STMicroelectronics, Microchip, and others, creating a rapidly expanding backlog in foundational node manufacturing; this shift is poised to produce above-market multi-year revenue growth compounding at high double digits, significantly elevating long-term EPS.
  
• SkyWater's strategic leadership in U.S.-centric, specialty analog, power management, sensor, and photonics manufacturing aligns directly with the relentless rise of AI, automation, IoT, and automotive markets; this multi-industry demand wave ensures that capacity ramp and customer diversification will drive continual fab utilization improvements, creating powerful operating leverage and step function gains in net margins through 2028 and beyond.
  
• The company's advanced packaging operation-unique as a true foundry solution for heterogeneous integration-will not only strengthen high-value defense and aerospace contracts but will attract outsized commercial adoption as semiconductor device complexity accelerates, positioning SkyWater as a critical supplier for next-gen product architectures and ensuring increasingly predictable, recurring revenues and EBITDA compounding over the long term.

SkyWater Technology Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on SkyWater Technology compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming SkyWater Technology's revenue will grow by 36.6% annually over the next 3 years.
• Even the bullish 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 -5.7% to the average US Semiconductor industry of 14.2% in 3 years.
• If SkyWater Technology's profit margin were to converge on the industry average, you could expect earnings to reach $105.1 million (and earnings per share of $2.14) by about August 2028, up from $-16.5 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 11.4x on those 2028 earnings, up from -34.6x today. This future PE is lower than the current PE for the US Semiconductor industry at 30.1x.
• Analysts expect the number of shares outstanding to grow by 1.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.65%, as per the Simply Wall St company report.

SkyWater Technology Future Earnings Per Share Growth

Risks

• Near-term and potentially sustained margin pressure is expected as SkyWater integrates Fab 25, with management noting compressed gross margins due to high non-cash depreciation expense and significant operating costs, which could hinder net margin expansion and overall profitability if synergies and higher-margin product ramps do not materialize as anticipated.
  
• The company's increased reliance on a few major customers, primarily via long-term supply agreements with Infineon and ongoing government contracts, means that any reduction or loss in these relationships could significantly disrupt revenue stability and earnings visibility over time.
  
• Rapid technological changes in the semiconductor industry raise the risk of specialty, trailing-edge, or mature node capacity-SkyWater's core focus-becoming less relevant, which may result in declining demand and lost revenues as more advanced technologies become industry standards.
  
• Persistent industry-wide capital intensity and rising costs for equipment, research, and development may outpace SkyWater's ability to invest, especially as larger, global competitors with greater scale can more easily upgrade processes, threatening both operating margin and competitive positioning.
  
• Long-standing government funding constraints and delays, particularly within key DoD programs, continue to pose a risk to revenue growth, and if such spending levels do not increase as anticipated, critical ATS revenues and earnings from defense-related work could falter, impacting overall financial performance.

Valuation

• The assumed bullish price target for SkyWater Technology is $18.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of SkyWater Technology'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 $18.0, and the most bearish reporting a price target of just $9.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $739.0 million, earnings will come to $105.1 million, and it would be trading on a PE ratio of 11.4x, assuming you use a discount rate of 10.6%.
  
• Given the current share price of $11.84, the bullish analyst price target of $18.0 is 34.2% 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.