As Adia deals with AMD, should you buy the lesser-known chip stock now?

Adea’s ( ADEA ) licensing deal with major chipmaker AMD ( AMD ) appears to leave Adea poised to receive large amounts of revenue from chipmakers, while ADEA reported strong fourth-quarter financial results. In addition, Wall Street analysts are very bullish on the company’s outlook, and its stock valuation is very attractive. Yet all these positive points are associated with a significant change in income.

In light of all these points, I see ADEA as a buy for only some investors.

Adia develops technology through R&D and then licenses it to other companies. Its hybrid bonding offerings allow chips to be “attached to ultra-fine pitch 3D electronic interfaces at room temperature without stress or adhesives.” According to the company, the hybrid connection “provides high reliability and improved thermal performance.” The company has also developed new cooling solutions for chips. Additionally, Adia provides technology that enables users to easily find, watch, and interact with video content on multiple devices.

In the fourth quarter, the company’s revenue increased to $182.6 million compared to $119.17 million in the same period last year, while its operating income increased to $108.75 million compared to $57.48 million in the fourth quarter of 2024.

ADEA stock has a low price-to-earnings ratio of 18.8 times and a market capitalization of $2.17 billion.

On March 9, Adia reported that AMD had agreed to sign a multi-year deal that would give the chipmaker “access to Adia’s … semiconductor intellectual property (IP) portfolio.” In addition, all pending litigation between the companies will be settled under the deal.

In a note to investors, investment bank Rosenblatt indicated that the deal bodes well for Adia’s ability to sign similar deals and reach $100 million in annual revenue from semiconductor companies, up from $26 million by 2025. Also worth noting is that Rosenblatt raised his price target on ADEA stock from $30 to $40 and gave the name a “buy rating” from $30 to $40.

In addition, research firm Treface said that the AMD agreement “confirms the strength and necessity of Adia’s semiconductor (intellectual property) portfolio, while at the same time the settlement of the case removes a significant risk and cost, allowing management to focus on growth and future collaborations.”

Of the five analysts covering ADEA stock, three have a “strong-buy” rating, one has a “moderate-buy” rating, and one has a “hold” rating. This is another great joint look. At the same time, the forward price-earnings ratio of 18.8 times is quite low, given the company’s strong growth and attractive forecast.

With Adea Semiconductor’s earnings continuing to expand rapidly in the wake of the AMD deal and the company changing hands at a lower valuation, ADEA stock appears to be an excellent choice for growth investors. However, historically, Adia’s revenue has fluctuated greatly, as it generated $516 million in 2020, $391 million in 2021, $439 million in 2022, and $389 million in 2023.

Therefore, although I think that the development of semiconductors due to AI has enabled the company to achieve positive change, I consider the name a bit risky, and I recommend that only risk-tolerant growth investors buy ADEA stock.

As of the date of publication, Larry Ramer had no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com