High Resolution Radar Design Wins Will Drive Long Term Autonomous And Nonautomotive Demand

Catalysts

About Arbe Robotics

Arbe Robotics develops high resolution radar chipsets and systems that enable advanced driver assistance and autonomous driving across automotive and nonautomotive markets.

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

• Imminent design win decisions at multiple global OEMs, including a leading European program targeting eyes off, hands off capabilities, can convert current engineering engagement into long duration production contracts that materially expand revenue visibility and future earnings power.
• Industry wide migration from legacy low resolution radar to high resolution sensing for Level 2 plus through Level 4 autonomy places Arbe, whose platform is already being used for data collection and algorithm training, in a priority position for content per vehicle gains that should lift long term revenue growth.
• Expansion of nonautomotive verticals such as defense, smart cities and maritime collision avoidance, supported by repeat orders and new customers, diversifies demand and brings nearer term volume potential that can help absorb fixed costs and gradually improve gross margins.
• Partnerships with a global AI computing leader and Tier 1 suppliers in both automotive and industrial markets embed Arbe technology deeper into full stack autonomous solutions, which can drive higher attach rates per platform and support scalable licensing and chipset revenue streams.
• A strong net cash position of over 52 million dollars and disciplined operating expenses provide sufficient runway to reach the 2027 to 2028 production ramp, reducing dilution risk while operating leverage on rising unit volumes can accelerate improvements in operating margins and net income.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Arbe Robotics's revenue will grow by 376.1% annually over the next 3 years.
• Analysts are not forecasting that Arbe Robotics will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Arbe Robotics's profit margin will increase from -7077.5% to the average US Electronic industry of 8.8% in 3 years.
• If Arbe Robotics's profit margin were to converge on the industry average, you could expect earnings to reach $6.3 million (and earnings per share of $0.05) by about December 2028, up from $-47.2 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 48.9x on those 2028 earnings, up from -3.5x today. This future PE is greater than the current PE for the US Electronic industry at 24.6x.
• Analysts expect the number of shares outstanding to grow by 3.51% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.81%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Design win expectations are concentrated in a small number of OEM decisions that have already been delayed by at least two quarters due to macro and tariff uncertainty. Any further postponements or lost tenders could push out the anticipated 2027 to 2028 ramp, limiting revenue growth and delaying the path to positive earnings.
• Despite long term secular growth in autonomous driving and ADAS, current revenues remain extremely small at 0.3 million dollars in the quarter and 2025 guidance of 1 million to 2 million dollars. Even modest execution setbacks or lower than expected nonautomotive demand could leave fixed R and D and SG and A costs underabsorbed and keep net margins deeply negative.
• The company is relying heavily on nonautomotive verticals such as defense, smart cities and maritime to bridge the period before automotive volumes scale. However, these emerging markets can be lumpy, project based and sensitive to public spending cycles, which could create volatility in backlog and constrain earnings visibility.
• Although management highlights price competitiveness and technology awards as advantages, ongoing price pressure from OEMs on every component may compress long term gross margins if Arbe must discount high resolution radar to win share. This could limit operating leverage and slow the improvement in net income even if unit volumes grow.
• The business is still generating operating losses of 11.5 million dollars per quarter and adjusted EBITDA losses that have widened year over year. If the anticipated ramp in revenues does not materialize before the 52.6 million dollar net cash balance is drawn down, the company may need dilutive financing that would weigh on per share earnings and potentially on the share price.

Valuation

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

• The analysts have a consensus price target of $1.88 for Arbe Robotics based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $72.0 million, earnings will come to $6.3 million, and it would be trading on a PE ratio of 48.9x, assuming you use a discount rate of 10.8%.
  
• Given the current share price of $1.52, the analyst price target of $1.88 is 18.9% 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.