Why Navitas Semiconductor Stock Sank This Week
Key Points
Navitas stock sank this week as investors became more cautious about specialized AI hardware plays.
The market's reaction to Fabrinet's quarterly report had a bearish impact on Navitas stock.
AI investors are worried about high levels of capital expenditures and long-term results.
Navitas Semiconductor (NASDAQ: NVTS) stock got hit with a pullback this week amid adverse valuation trends in the artificial intelligence (AI) hardware space. The company's share price closed out the week down 10.3%.
There wasn't any negative, business-specific news for Navitas this week, but the stock lost ground as investors reacted to Fabrinet's latest quarterly report. Navitas is still up 81.5% year to date, but its share price is also down 59% from its high.
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Fabrinet's quarterly update dragged Navitas stock lower
On Monday, Fabrinet released results for the fourth quarter of its last fiscal year -- which ended June 30. The company's fiscal Q4 results actually topped estimates, with non-GAAP (adjusted) earnings of $4.10 per share and revenue of $1.32 billion surpassing the average analyst forecast for earnings of $3.81 on revenue of $1.28 billion. The company also issued guidance for the current fiscal year that exceeded Wall Street's forecasts.
Despite otherwise encouraging quarterly results and guidance, investors focused on a decline in the company's gross margin and high capital expenditures and sent the stock tumbling. Fortinet's big sell-off caused sell-offs for other specialized players in the AI hardware industry, and Navitas got caught up in the pullback.
What does the market's reaction to Fabrinet's quarter mean for Navitas?
In terms of business outlook, Fabrinet's fiscal Q4 report has little clear implications for Navitas. The two companies operate in different corners of the tech industry, and Fabrinet's quarterly results and guidance generally signaled that the demand environment for AI-related technologies remains very strong.
On the other hand, investors have been showing increased sensitivity to high levels of capital expenditures this year due to concerns about the extent to which big investments will pay off over the long haul. If this dynamic causes the market to assign lower valuation premiums to AI stocks, it could cause additional valuation pressures for Navitas.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.