Navitas Soars on NVIDIA Deal: Breaking Down Its Tech and Outlook

Key Points

• Navitas Semiconductor just saw one of the largest single-day moves in recent memory.
• The company's collaboration with NVIDIA sets its next-generation chips up for a big-time source of demand.
• What makes Navitas' chips different, and should investors expect the run-up in shares to continue?

It is not every day that a stock soars over 164%, but that is exactly what happened to little-known chip company Navitas Semiconductor NASDAQ: NVTS on May 22. The stock exploded in value after announcing a partnership with chip giant NVIDIA NASDAQ: NVDA. Navitas calls itself a “next-generation power semiconductor company." However, what does this actually mean?

The analysis below will break down Navitas’ technology. This is essential to understand why NVIDIA would want to partner with this firm that is in a bit of a rut. Navitas has generated only $74 million in revenue over the last 12 months and saw sales decline nearly 40% last quarter. The company is also deeply unprofitable, achieving an adjusted operating margin of -84% last quarter. However, there is reason to believe its tech could be groundbreaking going forward.

Navitas: Innovating the Foundation of Semiconductors

So what exactly makes Navitas’ power chips “next generation"? It all comes back to the foundation of semiconductors, specifically the material companies build them on. Traditionally, a silicon wafer serves as the base for most semiconductors.

Silicon has dominated the industry for years and continues to do so.

However, semiconductors can use other materials as their foundation. This includes silicon carbide (SiC) and gallium nitride (GaN). Navitas calls its chips next-generation for a good reason. They use SiC and GaN, creating chips that are fundamentally different and more advanced than standard silicon.

SiC and GaN-based chips can offer significant advantages over silicon. For example, Navitas says a GaN-based phone charger can charge a phone three times faster than silicon. However, these chips also have strong use cases for AI data centers, of which NVIDIA has taken notice.

NVIDIA Partners With Navitas for Future Generation Servers

Through its partnership with Navitas, NVIDIA is planning for the future. NVIDIA plans to use Navitas’ GaN and SiC chips to power its Rubin Ultra server racks, which do not come out until mid-2027. GaN and SiC power chips have several key advantages. They can handle higher voltages much more efficiently. Plus, they fit into smaller packages compared to silicon power chips.

As AI becomes more complex, servers will need to consume much more power. To make this feasible, NVIDIA wants to re-engineer how power coming from the grid flows into a data center and eventually to each of its advanced AI chips.

The electricity coming directly from the grid is very high voltage. So, data centers must convert it to lower voltages to make it usable by NVIDIA’s chips. Traditionally, this requires many conversions, resulting in energy loss each time. NVIDIA is looking to reduce the number of conversions.

This means that each power chip involved in conversion has to handle higher voltages. Silicon chips become inefficient and large when doing this. This means that higher energy loss occurs and that more space gets taken up, leaving less space for NVIDIA’s computing chips.

This creates a significant need for Navitas's GaN and SiC chips, which are more efficient at higher voltages and are smaller.

The Future Potential for Navitas Is Real, But Near-Term Downside Seems Likely

One might ask: if GaN and SiC chips are so much better than silicon chips, then why are Navitas’ revenues so low? The answer is likely because these chips can be much more expensive, and their benefits have yet to outweigh the costs.

However, NVIDIA’s partnership with them is evidence that this is changing. In a sense, Navitas has been playing the long game. It has known that future technology would eventually need its chips. It has prioritized becoming an expert in these chips rather than trying to meet the market where it is now.

Analysts expect the company’s revenue to pick up significantly in 2026 and 2027 as its $450 million in design wins convert into production and revenue. This should also substantially benefit profitability. This all sets up Navitas for a significant opportunity to achieve long-term success.

However, given the stock’s meteoric rise, it will likely face downward momentum in the coming months. The recent news will probably fade over time. There doesn't appear to be any short-term catalysts for this name, unless another unexpected announcement comes up.

The company's earnings release in August might lift the stock again if it raises guidance or shares important NVIDIA information. Overall, Navitas remains a highly interesting long-term opportunity, but not necessarily one to pound the table for at current prices.