Edge AI And Core IoT Timelines Will Limit Long Term Upside Potential

Catalysts

About Synaptics

Synaptics supplies chips and mixed signal solutions used in Core IoT, Enterprise & Automotive and Mobile Touch applications.

What are the underlying business or industry changes driving this perspective?

• The push toward Edge AI and hybrid compute between data centers and devices could lead to heavy, ongoing R&D and capital needs for Astra and Torq AI, which may pressure net margins if revenue from these platforms scales more slowly than current investor expectations.
• While demand for AI capable IoT devices, wearables and AR glasses is an area of interest, actual production ramps for Astra SL2600, the semi custom design and the MCU plus Wi Fi 7 combo are scheduled out into late 2026 and 2027. Any delays or smaller rollouts could leave revenue and earnings short of what a premium valuation implies.
• The broadening into industrial IoT and robotics depends on slower qualification cycles and later design adoption than consumer devices. If industrial customers take longer to standardize on Synaptics platforms, that gap could weigh on overall Core IoT revenue growth and limit operating leverage.
• The company is leaning into trends such as AI enabled PCs, workstations and enterprise peripherals, yet management describes PC and enterprise demand as steady rather than in a clear refresh cycle. If upgrades tied to Windows 10 timing or return to office do not materialize as hoped, Enterprise & Automotive revenue and gross margin mix could disappoint.
• Synaptics is targeting higher silicon content in foldable phones and AI capable mobile devices, but this depends on broader adoption of foldables, OEM insourcing decisions and the pace of supply chain normalization. These factors could cap Mobile Touch revenue contribution and limit EPS growth if volumes or pricing soften from current assumptions.

Assumptions

This narrative explores a more pessimistic perspective on Synaptics compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Synaptics's revenue will grow by 10.3% annually over the next 3 years.
• The bearish analysts are not forecasting that Synaptics will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Synaptics's profit margin will increase from -4.1% to the average US Semiconductor industry of 14.2% in 3 years.
• If Synaptics's profit margin were to converge on the industry average, you could expect earnings to reach $210.6 million (and earnings per share of $5.48) by about January 2029, up from $-45.3 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.6x on those 2029 earnings, up from -75.5x today. This future PE is lower than the current PE for the US Semiconductor industry at 43.9x.
• The bearish analysts expect the number of shares outstanding to decline by 0.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.62%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Core IoT revenue grew 74% year over year and has been running at what management describes as 50% plus growth on average over several quarters. If this is sustained, it could support higher long term revenue and earnings than a bearish view implies.
• The Astra Edge AI platform already has early design wins, a growing funnel and expected revenue contribution from the second half of calendar 2026. Successful ramps in Edge AI processors and related Torq AI software could support stronger revenue and net margin outcomes than a pessimistic thesis assumes.
• Management highlighted content gains in PC, enterprise peripherals and foldable phones, including marquee design wins with a top Android OEM and higher content per foldable device. This could lift revenue density per unit and support EPS even if unit growth is modest.
• The company reports non GAAP gross margin of 53.2% and non GAAP operating margin of 17.6% with cash, cash equivalents and short term investments of US$459.9m and ongoing cash generation. If this margin profile and balance sheet strength are maintained or improve, downside pressure on earnings could be less severe than a bearish scenario assumes.
• Synaptics is expanding into industrial, automotive, wearables and AR glasses and is leveraging partnerships such as Google Research and Coral NPU. If these long duration end markets adopt its Edge AI and wireless offerings at scale, multiyear revenue and EPS could trend higher than expected in a negative share price view.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Synaptics is $69.37, which represents up to two standard deviations below the consensus price target of $91.82. This valuation is based on what can be assumed as the expectations of Synaptics's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $106.0, and the most bearish reporting a price target of just $65.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $1.5 billion, earnings will come to $210.6 million, and it would be trading on a PE ratio of 17.6x, assuming you use a discount rate of 11.6%.
  
• Given the current share price of $87.76, the analyst price target of $69.37 is 26.5% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
  
• 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.