Valens Semiconductor Ltd

Valens Semiconductor Ltd (NYSE: VLN) is an Israel-based company which is active in semiconductor industry. The Company is mainly engaged in providing digital connectivity solutions for the audio-video and automotive markets. Its Emmy HDBaseT technology chipsets integrated into the HDBaseT-enabled products in the professional audio-video markets. Its HDBaseT solutions for the audio-video market, which delivers plug-and-play convergence and distribution of different interfaces. Its HDBaseT enables the delivery of ultra-high-definition digital video and audio, Ethernet, control signals, universal serial bus (USB) and power through a single cable.

Recent Business and Financial Updates

• Key Financial Highlights: In the first quarter of 2024, Valens Semiconductor reported revenues of USD 11.6 million, a decrease from USD 23.9 million in the first quarter of 2023. The GAAP gross margin for Q1 2024 was 59.0%, while the non-GAAP gross margin stood at 62.0%. This contrasts with a GAAP gross margin of 66.1% and a non-GAAP gross margin of 67.2% in Q1 2023. The decline in gross margin was attributed to lower revenues, reduced fixed cost absorption, the evaluation of certain inventory costs, and a shift towards a higher proportion of automotive revenues, which generally have lower margins compared to audio-video revenues. The GAAP net loss for Q1 2024 was USD 10.0 million, compared to a GAAP net loss of USD 5.4 million in Q1 2023. Additionally, the adjusted EBITDA loss increased to USD 7.1 million in Q1 2024 from USD 2.9 million in the same period the previous year. Valens Semiconductor maintained a robust balance sheet with USD 139.8 million in cash, cash equivalents, and short-term deposits as of March 31, 2024, slightly down from USD 142.0 million at the end of December 2023. The inventory balance also decreased to USD 12.5 million on March 31, 2024, from USD 13.8 million on December 31, 2023.
• Financial Outlook: Valens Semiconductor does not provide GAAP net profit (loss) guidance due to the unpredictability of certain elements, such as share-based compensation expenses and warrant valuations. The company utilizes adjusted EBITDA as a non-GAAP measure to provide a clearer financial outlook. CFO Guy Nathanzon highlighted the ongoing macroeconomic challenges, including short lead times affecting order activity and inventory consumption. Despite these challenges, the company expects improved customer demand, projecting second quarter revenues between USD 12.5 million and USD 13.0 million. The gross margin is anticipated to range between 52.0% and 52.5%, with an adjusted EBITDA loss projected between USD 8.3 million and USD 8.0 million.
• Strategic Position and Industry Prospects: CEO Gideon Ben-Zvi emphasized Valens Semiconductor's progress in expanding collaborations and partnerships across various verticals, advancing high-performance connectivity solutions, and enhancing the visibility of its superior technology. One notable achievement this quarter was the growing interest in Valens' high-performance USB 3.0 extension solution, the VS6320. Since its launch in Q4 of the previous year, the VS6320 has been integrated into over 30 products, with multiple announcements and product launches anticipated at the InfoComm International trade show in June. This initial backlog is expected to drive increased sales in the second half of 2024.
• Long-term Growth and Market Opportunities: Valens Semiconductor continues to invest in expanding its presence within multiple verticals of the audio-video market, leveraging the positive long-term trends and new additions to its portfolio, such as the VS6320 and VA7000 chipsets. These verticals, including video conferencing, industrial, and machine vision, represent a total addressable market of approximately USD 1 billion annually. Furthermore, the company identifies significant growth opportunities within the automotive industry, projecting a total addressable market of USD 4.5 billion annually by 2029, driven by technological innovations and diverse sector applications.

Technical Observation (on the daily chart):

The Relative Strength Index (RSI) over a 14-day period stands upward trending with value of 68.38, with expectations of a consolidation or an upward momentum. Additionally, the stock's current positioning is above both the 50-period SMA and 200-period SMA, which may serve as dynamic short to medium-term support levels.

As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a ‘Speculative Buy’ rating has been given to Valens Semiconductor Ltd (NYSE: VLN) at the current market price of USD 2.72 as of May 29, 2024

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is May 29, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the New York Stock Exchange (NYSE), NASDAQ Capital Markets (NASDAQ), and or REFINITIV. Typically, all sources (NYSE, NASDAQ, or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.