Alphawave share price lifted by OpenFive acquisition

The chip industry continues to struggle amid economic uncertainty, with orders down and further declines expected. Microchip tech firm Alphawave has been hit by these same headwinds, but its recent purchase of OpenFive provided a small lift — though it remains to be seen whether this trend will continue.

Semiconductor company Alphawave’s [AWE.L] bid to buy US-based IP expert OpenFive was recently given the green light by US regulators, boosting its beleaguered share price. On the day of the news, the stock rose 6.5% to close at 131.4p on 26 August and has trended higher since then.

However, Republican senator Marco Rubio soon weighed in on the £210m deal, which was approved by the Committee on Foreign Investment in the US (CFIUS). He claimed it posed national security risks due to Alphawave’s links with Chinese company Wise Road Capital, which has a 10% stake in the business. He added that President Joe Biden’s administration was ignoring the potential threat of China stealing US intellectual property. “American competitiveness will suffer in the long term as a result,” he said.

In response, Liu Pengyu, a spokesperson for the Chinese Embassy in Washington, told Reuters he believed there was no political motive for the deal. “Some US politicians are… accusing China of ‘stealing’ intellectual property rights but are short on delivering solid evidence,” he said.

Since the deal was signed on 1 September, the Alphawave share price has risen 3.7% to close at 139.2p on 6 September.

Revenues grow despite IPO flop

Despite this modest lift, it’s been a disappointing 12 months for the Alphawave share price, which has followed an almost continuous downward trajectory as the wider semiconductor industry suffers. Year-to-date through 6 September, the stock has sunk 30.3% and is trading 69.2% lower than its 52-week high of 451.6p from September last year.

The company, based in Toronto and London-listed, only IPO’d in May 2021, but instantly became a victim of the global tech selloff, with its shares crashing off the starting block. It has been on shaky ground ever since.

However, despite this poor performance, Alphawave’s revenue continues to grow.

Founded in 2017, the company designs technology that enables faster connectivity for microprocessors, and it’s recorded strong profits since 2018. At the end of April, the company announced its FY21 results, reporting year-over-year revenue growth of 173% to $89.9m and EBITDA growth of 168% to $51.8m.

It released its Q2 2022 trading and business update at the end of July, announcing five new end-customers and six new design wins. The company also reported that its cumulative bookings from 2017 to mid-2022 exceeded $400m.

Alphawave’s president and CEO Tony Pialis acknowledged the impact of macroeconomic uncertainty but claimed: “Our increased pace in design wins and our continued technology leadership in 3nm demonstrate the strong momentum of Alphawave IP.”

Analysts see further downside for chip stocks

Alphawave’s bread and butter is IP technology services, which help data to travel faster and use less energy. The company’s customer base ranges from data centres to electric vehicles, and it’s hoped that the latter’s growth in particular might give the chip industry a much-needed lift.

However, the outlook for the industry is gloomy, according to Citi analyst Christopher Danley, who recently wrote in a research note that he believed chip stocks could crash by another 25%. He predicted: “We are entering the worst semiconductor downturn in a decade.”

US-based Analog Devices [ADI] recently said order cancellations had edged upwards as the economy faltered, while chipmaking giant Taiwan Semiconductor Manufacturing [TSM] is among the companies saying inventory levels are too high as consumer demand weakens.

Whether Alphawave can sidestep this forecast remains to be seen. Two analysts offering a view at MarketBeat recommend to ‘buy’ the stock, with a target price of 380p, representing a healthy 173% hike on its 6 September closing price.