Skip to main content
hello world

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

Why Rambus Rallied Today

Motley Fool - Tue Oct 29, 12:29PM CDT

Shares of Rambus(NASDAQ: RMBS) rallied 11.3% on Tuesday as of 12:36 p.m. ET.

Positive news on Rambus came from last night's third-quarter earnings report, in which Rambus' bottom line handily surpassed expectations. Management also gave a positive outlook on the current quarter.

AI is leading to surging DRAM demand

Rambus makes revenue in three ways: memory interface chips, which protect and control the flow of data between the memory chip and CPU or GPU in a server; royalty revenue, in which Rambus licenses its patents to other chipmakers; and contract and other, which licenses its physical chip cores, along with service and maintenance fees.

Rambus' chip prices don't fluctuate as much as DRAM memory chips do, but its revenue is still highly levered to DRAM demand and the number of server modules sold.

With artificial intelligence (AI) kicking into full gear and traditional servers emerging from their downturns, that demand appears to be strong. Rambus' revenue surged 38.2% to $145.5 million, with earnings per share (EPS) of $0.45. While EPS was technically down year over year, the prior year's quarter benefited from a large gain on a divestiture. And while revenue actually slightly missed estimates, the bottom line exceeded expectations by $0.05.

Management also guided for sequential growth, forecasting about $160 million in Q4 revenue, which would be up about 10% sequentially.

In the release, management also noted it was first to market with modules for new advanced DDR5 MRDIMM 12800 and RDIMM 8000 modules, which have the potential to significantly expand the company's addressable market and growth.

Rambus is well positioned amid the AI revolution

Rambus is an off-the-radar company that doesn't garner as many headlines as the large-cap chip leaders, but it could be another big AI beneficiary. After today's surge, shares go for about 25 times current run-rate earnings per share, while the company seems poised for strong growth in the year ahead. In addition, Rambus holds about $433 million in cash and no debt, which is good for about 8% of its market cap, and it's also repurchasing stock, with $50 million in repurchases last quarter.

With Rambus' stock still about 30% below its recent highs set earlier this year, it's definitely an AI name to put on your watch list, even after today's bounce.

Should you invest $1,000 in Rambus right now?

Before you buy stock in Rambus, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Rambus wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $861,121!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of October 28, 2024

Billy Duberstein and/or his clients have 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.