Lidar Adoption Across Transportation And Defense Will Drive Long-Term Opportunity

Catalysts

About AEye

AEye develops high performance, software configurable lidar systems and analytics to enable advanced driver assistance, intelligent transportation and defense applications.

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

• Scaling a dedicated Apollo production line with LITEON to 60,000 units per year aligns with rising adoption of lidar enabled safety and autonomy in transportation and defense, positioning AEye to convert its expanding funnel into material product revenue and improved gross margins.
• Growing interest in long range, high resolution sensing for intelligent transportation systems, rail automation and aerospace is driving a sixfold increase in nonautomotive prospects. This trend may support more diversified revenue growth and reduce earnings volatility as programs move from proof of concept to volume.
• Automotive OEMs shifting specifications toward Level 3 and Level 4 capabilities, and preferring behind the windshield integration, directly favor Apollo’s long range performance and compact design, creating potential for larger, longer duration contracts that can increase revenue scale and operating leverage.
• Expanding ecosystem partnerships, including perception software and compute providers such as Black Sesame, Blue Band and Flasheye, enables AEye to offer more complete solutions without heavy in house software spending, which can support a faster revenue ramp with structurally better net margins.
• Strong liquidity with more than $90 million in cash, a cleaned up capital structure and a capital light operating model gives AEye runway to execute its three phase growth plan, allowing revenue expansion and eventual earnings improvement to be realized without substantial shareholder dilution.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming AEye's revenue will grow by 602.7% annually over the next 3 years.
• Analysts are not forecasting that AEye will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate AEye's profit margin will increase from -19320.9% to the average US Electronic industry of 8.8% in 3 years.
• If AEye's profit margin were to converge on the industry average, you could expect earnings to reach $5.5 million (and earnings per share of $0.1) by about December 2028, up from $-35.2 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 76.3x on those 2028 earnings, up from -3.4x 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 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 8.41%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Secular adoption of lidar in automotive, defense and infrastructure may progress more slowly than management anticipates, leaving Apollo underutilized relative to its 60,000 unit annual capacity and limiting long term revenue growth.
• AEye remains loss making with a GAAP net loss of $9.3 million in the third quarter and cash burn guided to the high end of $27 million to $29 million for 2025, so any delay in reaching Phase 2 and Phase 3 of the growth plan could prolong negative earnings and pressure net margins.
• The capital light model relies heavily on LITEON and multiple software partners, and any execution issues, supply disruption or partner strategy changes could constrain deliveries of Apollo and OPTIS and compress both revenue and gross margin scalability.
• Expansion into diverse use cases such as UAVs, rail, aviation and smart infrastructure is still at proof of concept stage, so if these deployments fail to convert into volume contracts the large nonautomotive funnel may not translate into the expected revenue and operating leverage.
• Although the company has more than $90 million in cash and no significant debt, sustained high cash burn beyond 2028 or weaker than expected revenue ramp could force additional equity financing and dilute shareholders, limiting per share earnings growth.

Valuation

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

• The analysts have a consensus price target of $6.0 for AEye 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 $63.1 million, earnings will come to $5.5 million, and it would be trading on a PE ratio of 76.3x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $2.64, the analyst price target of $6.0 is 56.0% 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.