1 Overlooked AI Stock for Growth and Passive Income

Silicon Motion Technology Corp. SIMO is an American-Taiwanese company specializing in the development of microcontrollers for ICs and NAND flash storage devices. Silicon Motion is the leading supporter of NAND flash products, especially the next-gen flash products produced by Samsung, SK Hynix, Intel INTC, Micron MU, and Western Digital WDC. Their products are primarily used in SSD controllers in the mobile storage market, used in PCs, data centers, and smartphones. Founded in 1995, it operates in Taiwan, Hong Kong, and the U.S. 

SIMO stock is a technical standout, having gained 23.3% this year, and 31.5% over the past 52 weeks. However, the stock trades 20.8% below its 52-week high, allowing investors to buy the dip. 

Along with its outsized share price gains, SIMO offers a quarterly dividend of $0.50 per share. The stock yields about 2%. 

SIMO Beats Q1 Earnings Estimates

Silicon Motion released its 1Q results last Thursday, with a 53% increase YoY in revenue to $189.3 million beating analysts’ estimate of $180.2 million. Net income came to $0.64 per adjusted share, better than Wall Street’s $0.58 per share expectations. Gross margin stood at 45%, while operating margin held at 9.5% during the quarter. 

The company also released its 2Q guidance, saying it expects revenue in the range of $199 million to $208 million, which translates to growth of 5% to 10% sequentially and 42% to 28% YoY. Management anticipates a gross margin rate of 45% to 46%, with an operating margin between 16.5% to 17.5%. 

On a full-year basis, management expects revenue between $800 million to $830 million, a 25% to 20% increase YoY. Gross margin is projected in the band of 45% to 47%, with operating margin at 14.7% to 16.7%. 

How Did Analysts React?

Analysts are very optimistic about SIMO stock, based on their consensus "Strong Buy” rating and mean price target of $93.78. That suggests a potential upside of 22.8% from current levels. At present, 9 analysts are tracking the stock, 8 of whom have a “Strong Buy” rating, with one “Moderate Buy” to round out the opinions.

After earnings, brokerage firm Morgan Stanley MS upgraded the stock to an “Overweight” rating from “Equal-Weight,” noting that SIMO is taking advantage of advancements in AI. 

In a note accompanying the upgrade, Morgan Stanley called out Silicon Motion's newly raised revenue guidance for the full year, saying, “this reflects strong orders from clients and SIMO's introduction of a more comprehensive product portfolio.” It also cited Silicon Motion’s exposure to the PC market as a future catalyst amid the expansion of AI-powered PCs. 

The firm increased its price target from $59 all the way to $88, reflecting expected upside of 15.3% from current levels. 

On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.