Bull of the Day: Ceva (CEVA)

Leading the Future: Connect, Sense, Infer

The CEVA focus is to create and license silicon and software IP that breaks down barriers to entry, helping their customers bring new cutting-edge products to market faster, more reliably, efficiently and economically.

Enough of my bloviating, let's hear from the company itself on their site...

"For more than three decades Ceva has been a trusted provider of critical technology that enables people and electronics systems to interact in seamless, secure, and increasingly more intuitive and predictive ways. Ceva’s transformative semiconductor IP and embedded software offerings are used by the world’s top semiconductor and electronics companies to develop extraordinary and differentiated products that connect, sense, and infer - the three critical pillars of the rapidly evolving era of AI-enabled Smart Edge. Built on that foundation, Ceva’s solutions enable a new generation of connected and distributed intelligence to make our lives safer, enjoyable and more efficient."

With over 200 patents, CEVA powers more than 22 billion devices and counting, and has established leadership positions in key technology areas...

Connect: Reliable and secure wireless connectivity for use in both infrastructure and end points

Sense: Low-power and highly efficient audio and video/vision sensing and interface solutions

Infer: Scalable neural-network-based AI processing

World-leading brands in consumer electronics and IoT, mobile devices, PCs, automotive, and industrial rely on Ceva’s proven and reliable solutions to enhance their competitiveness by reducing complexity, cost, and time to market, while delivering remarkable user experiences. 

They include Samsung, Intel, Sony, Nokia, LG, and NXP (NXPI) who is trying to buy Ambarella (AMBA) for ADAS sensing but I think they should just buy CEVA for one-fourth the market cap.

All Brains, All Day

Unlike NVIDIA (NVDA) or AMD, CEVA doesn't manufacture semiconductors themselves. Instead, they build the brains of chips that fall into the 3 major Physical-AI pillars Connect, Sense, Infer...

Connect: Wireless connectivity IP, from Bluetooth and Wi-Fi to 5G and Satcom

Sense: DSPs that help devices process voice, vision, and sensor data efficiently at the edge

Infer: Edge AI neural processing units (NPUs) optimized for on-device AI workloads, from machine learning to Gen-AI

Using these edge AI software stacks, semiconductor companies can then license CEVA’s technology and integrate it into their own chips.

This is a royalty-based business model with gross margins north of 80%. And AI already represents 20%+ of licensing revenue and continues to grow rapidly as the company is projected to cross $140 million in sales next year, giving it a Price/Sales valuation of only 6X -- very attractive for an emerging player in what should be a hyper-growth space for the next 5-10 years.

But here was some straight talk on the competition from investor-influencer Yiannis Zourmpanos on X in June...

"Most Physical AI stocks are already pricing in a world that doesn’t exist yet. I’m not buying the 'every lidar company wins' narrative.

AMBA and CEVA are the most interesting here because they sit closer to the compute/IP layer instead of pure hardware commoditization. Royalties scale better than sensors. Hardware eventually becomes a knife fight.

CEVA signed 14 IP licensing agreements in Q1 alone, and today's licensing deals will show up in revenues 1-2 years later.

Also, nobody wants to say it, but a lot of these Physical AI projections feel like EVs in 2021 all over again. The winners probably exist but 70% of the public names won’t survive long enough to see the TAM they pitch.

Still think AMBA is the cleanest asymmetry in the group. Ouster (OUST) is interesting, but the market already knows the story now."

I found his observations interesting because I am already intensely invested in the Physical-AI transformation and have owned AMBA but now own OUST for its LiDAR integration into the NVIDIA Hyperion DRIVE platform for ADAS (automated driver assistance systems).

Elon has always dismissed LiDAR as unnecessary. But if it's good enough for Jensen, I'm all in. I think OUST and CEVA will be big winners in this emerging world of "intelligence at the edge."

Disclosure: I own NVDA, CEVA, and OUST for the Zacks TAZR Trader portfolio. 

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This article originally published on Zacks Investment Research (zacks.com).

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