AI-Era Smartphone And AR Battery Demand Will Drive Major Long-Term Upside

Catalysts

About Enovix

Enovix develops advanced silicon based lithium batteries designed to deliver industry leading energy density for space constrained devices.

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

• The validation of the AI-1 smartphone battery as the highest energy density solution for smartphones, combined with on-device AI performance needs, positions Enovix to target premium share as OEMs redesign flagships around larger power budgets, potentially supporting higher revenue and higher ASPs.
• Two committed smartphone OEM programs with similar technical requirements, together with progress toward 1,000 cycle life, create a repeatable qualification blueprint that may accelerate follow-on wins with other top-tier OEMs and support a multi-year smartphone revenue ramp.
• Rapidly emerging smart eyewear and AR markets, where multiple brands target 2026 launches and require maximum energy in minimal volume, give Enovix a potential first mover advantage in a product category that could add a higher margin growth layer on top of smartphones.
• Expanding demand for high performance batteries in defense, drones and industrial applications, supported by an established Korean manufacturing base and a growing global pipeline, provides a potential volume backbone that may improve factory utilization and gross margins as smartphone volumes scale.
• Capacity and yield progress at Fab2 in Malaysia, together with an NPI line for 100 percent active silicon in Korea and more than $600 million in liquidity, may lower execution risk on scaling, reduce future CapEx per unit and support a path to improving net margins and earnings leverage.

Assumptions

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

• The bullish analysts are assuming Enovix's revenue will grow by 133.3% annually over the next 3 years.
• The bullish analysts are not forecasting that Enovix will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Enovix's profit margin will increase from -525.9% to the average US Electrical industry of 11.8% in 3 years.
• If Enovix's profit margin were to converge on the industry average, you could expect earnings to reach $45.4 million (and earnings per share of $0.18) by about December 2028, up from $-159.2 million today.
• 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 578.3x on those 2028 earnings, up from -10.9x today. This future PE is greater than the current PE for the US Electrical industry at 30.3x.
• The bullish 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 10.03%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Commercialization in smartphones and smart eyewear remains unproven, with Honor still in qualification and the second OEM only in the early definition phase. Any delay in achieving 1,000 cycle life or passing full device level testing could push out 2026 launches and slow adoption across other OEMs, reducing the expected ramp in revenue and limiting operating leverage on earnings over the medium term.
• Despite improved gross margin, Enovix is still generating a sizeable non GAAP operating loss and guiding to higher operating expenses as it invests in Fab2 and NPI capacity. If utilization ramps more slowly than planned or product mix skews toward lower margin defense and industrial volumes, gross margins could compress and net margins and earnings may remain deeply negative for longer than bullish expectations imply.
• The business model is increasingly capital intensive, with significant planned CapEx for Fab2 and the Korean NPI line funded by warrant proceeds and convertible notes. If future funding needs arise before the company reaches sustainable cash flow, adverse capital markets or higher dilution could weigh on shareholder value and constrain investment, impacting future net margins and earnings growth.
• The technology roadmap depends on ongoing chemistry changes and integration of new silicon anode materials. If subsequent iterations introduce unforeseen reliability issues or require further redesign, qualification cycles could repeatedly reset and undermine customer confidence, delaying scale volumes and limiting revenue growth and gross margin expansion.
• The long term narrative assumes that the AI driven surge in edge computing, AR eyewear, drones and EVs will translate into sustained premium pricing for Enovix’s cells. However, intensifying competition from incumbent and emerging battery technologies or OEM insourcing could erode pricing power and share, pressuring average selling prices, compressing gross margins and muting the growth in earnings over time.

Valuation

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

• The assumed bullish price target for Enovix is $76.53, which represents up to two standard deviations above the consensus price target of $26.9. This valuation is based on what can be assumed as the expectations of Enovix'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 $100.0, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $384.3 million, earnings will come to $45.4 million, and it would be trading on a PE ratio of 578.3x, assuming you use a discount rate of 10.0%.
  
• Given the current share price of $8.27, the analyst price target of $76.53 is 89.2% 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.