An under-the-radar stock delivered the best quarter of the chip sector

Jim Cramer said Qnity Electronics delivered "the best quarter I've ever seen in semiconductors" on Thursday. Given the overall beats and sunnier outlook, it's an approach that's hard to argue with. Revenue in the first quarter rose 17.6% year over year to $1.32 billion, beating the $1.27 billion LSEG had expected. Earnings per share (EPS) rose 33.3% year over year to $1.08, according to LSEG, beating the consensus estimate of 92 cents. Quarter 1Y Mount Qnity 1-year return Shares rose at launch but fell along with the broader market. But by late afternoon, they were expecting to close at an all-time high. In Summary This was Qnity's second quarter since its separation from DuPont in November, and it was another remarkable quarter. Along with the decline in sales and earnings in each of the company's two operating segments, the company's operating earnings before interest, taxes, depreciation and amortization (EBITDA) margins also came in better than forecasts. It was another victory for this ardent beneficiary of the AI boom. The management team also raised its full-year forecast for the top and bottom lines above the quarterly results. This is notable because it means management is not only riding on the strength of the first quarter, but expects results to beat estimates in future quarters. In other words, the stock is cheaper on an earnings basis than previously thought, and estimates are set to move higher. What has enabled this obscure actor to be so successful? Qnity plays a key role in data center fabrication by providing the chemicals and other specialty materials used to manufacture semiconductors and package them in increasingly complex shapes. The company's two operating divisions work hand in hand to create growth. Its Semiconductor Technologies segment helps customers build computer chips and electronic devices, while Interconnect Solutions addresses performance challenges such as power efficiency, thermal management, signal integrity and long-term reliability. Key customers include leading chipmakers TSMC, Samsung and SK Hynix. Why we have it Qnity is a major supplier of chemicals and materials used in semiconductor and electronics manufacturing. The more chips and electronic devices are produced, the greater the demand for Qnity products. Competitors: Entegris, MKS, Element Solutions Latest acquisition: Nov. 19, 2025 Launched: Club acquired Qnity stake in DuPont spinoff in late 2025. This one-two punch makes Qnity a great way to play the AI build; It's a true "pick and shovel" name, a critical supplier for companies producing chips designed by Nvidia, Broadcom and others. As a result, it doesn't really matter where the demand is in the data center. Whether it's GPUs (graphics processing units), CPUs (central processing units) or memory, companies need advanced materials and solutions that Qnity provides. In a conference call with investors, CEO Jon Kemp noted that chips have improved over the years by getting smaller, but chip makers have run out of room to make them even smaller. The industry is now starting to stack chips on top of each other to make them more powerful and efficient. This trend will only put more demand for Qnity materials, Kemp said. We were prepared to see some weakness in the consumer electronics business, given the rapid rise in memory prices, which has led to higher selling prices of products such as PCs and smartphones. But we were pleased to see very little headwinds in the quarter. This will likely become an increasingly unimportant factor as the company's sales mix changes. Kemp said during the call that the business is resilient for two reasons: The company's exposure is in the more premium segment of the market, where consumers are slightly less price sensitive; and second, increased demand for AI infrastructure more than offset any weakness in the quarter. “As customers allocate capacity to the highest value applications, our portfolio mix is increasingly moving beyond consumer electronics to attractive high-value applications such as data centers, autonomous driving, aerospace and defense,” he added. Last quarter, executives unveiled details of a multi-year transformation plan aimed at simplifying operations, increasing productivity and reducing costs. The plan is expected to lead to a $100 million increase in EBITDA by the end of 2028. Management said the plan was on track. Given the remarkable quarter, Qnity is in a great position to continue grabbing market share not only as chips become smaller, but also as the industry shifts toward stacking. Therefore, we are increasing our price target from $140 to $180. We maintain our hold-equivalent 2 rating, as the stock has doubled year over year, but will look for an upgrade opportunity in the event of a pullback. Quarterly results were a clean sweep overall, as Qnity managed to exceed expectations for sales, EBITDA and EBITDA margins in both of its two core operating segments (Semiconductor Technologies and Interconnect Solutions). The Semiconductor Technologies segment hosts products used directly in the complex process of semiconductor construction. It also covers the materials used in certain TV screens and other electronic displays. Products sold by the Interconnect Solutions segment are more compatible with advanced packaging and thermal management. The complexity of AI chips is increasing demand for both processes. As the name suggests, this segment is also involved in the manufacturing of "interconnect" products that connect various parts of the data center. Artificial intelligence also increases the demand here. Guidance Management raised its targets across the board for the full year 2026: Sales rose to $5.375 billion, up from the previous range of $4.97-$5.17 billion, topping the consensus estimate of $5.12 billion at the midpoint, including the low end, according to LSEG. Adjusted operating EBITDA rose to $1.625 billion from $1.575 billion, up from $1.465 billion previously, and $1.535 billion to $1.625 billion, above the consensus estimate of $1.532 billion, according to FactSet. Adjusted earnings came in at $3.80 to $4.14 per share, up from a previous range of $3.55 to $3.95 per share, above the $3.71 billion consensus estimate, according to LSEG. According to FactSet, free cash flow was adjusted to $550 million from $450 million previously forecast and $500 to $600 million, above the consensus estimate of $413 million. (See here for a complete list of stocks in Jim Cramer's Charitable Trust.) 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