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artificial intelligence (ai) is already becoming the most important investment theme since the Internet emerged. And some US technology stocks, in particular Nvidiahave created mind-boggling wealth for investors in recent years. I've been looking for an ai-related UK stock that could also reach the stars.
I think I found one shaped like a Alphawave semi-trailer (LSE:AWE). The semiconductor stock has fallen 61% since it went public in May 2021. However, it is up 14.5% so far this year, meaning a turnaround may be brewing.
How do you make money?
As a potential investor, the first thing I want to know about a company is how it generates revenue. In the case of Alphawave, I think this can be summed up in two main ways.
- Intellectual property licensing: The company sells blueprints to other companies that use them to build their own chips. It's a bit like selling a recipe.
- Custom silicon: Customers can also purchase a finished semiconductor from Alphawave, designed to meet their specific requirements. It's like selling prepared food.
The company specializes in high-speed connectivity solutions that allow data to travel faster and consume less energy. This last point is important because electricity consumption is skyrocketing in data centers.
In fact, Google just announced that its carbon emissions have increased by almost 50% since 2019 due to the energy demands of ai.
Growth rate
Alphawave says: “Our technology… is an essential part of the core infrastructure that enables next-generation services in data centers, artificial intelligence, 5G wireless infrastructure, and data networks. (and) autonomous vehicles.“
All of these areas are experiencing high growth, especially artificial intelligence systems and autonomous vehicles. So the market opportunities are there, but the question is whether the company can take advantage of them.
Growth hasn't been a problem since its founding in 2017, though. Last year, revenue rose 74% to $322 million, up from $185 million in 2022. That's a huge jump from just $7 million in 2019.
However, last year's figure was below the $340 million to $360 million forecast given in January. It also lost $51 million during the year as it accelerated a transition away from China.
Here's how the market currently sees its revenue growth through 2026.
| 2024 | 2025 | 2026 | |
| Revenue | $352 million | $442 million | $550 million |
Valuation
Analysts expect the company to return to profitability this year. If their numbers are correct, this would put the stock at a multiple of 49 times its earnings, which seems quite expensive. However, we could see that multiple shrink to just 16.3 times in 2026.
However, one risk here would be a significant slowdown in ai spending, which would hurt the company's growth trajectory. This is not expected to happen as long as data center spending continues to rise, but I would say it is a key risk to be aware of.
One to watch
Overall, I think there's a lot to like. Alphawave's end customers increased to 103 last year, up from 80 in 2022. And it's collaborating with Arm holdings on the development of an advanced computing chiplet.
Looking ahead, further growth seems likely as demand for customisable ai chips increases. Indeed, the company estimates its total addressable market to be nearly $40bn by 2027. To put that into context, its current market cap is just £1bn.
Given that this growth stock is down 61%, I think it's worth taking a closer look at 146p. I've included it on my watchlist.
