Here’s our price target and rating on Qnity, our newest stock to ride the AI chip boom
Call us believers in the Qnity Electronics story. We assign a buy-equivalent rating of 1 and a price target of $110 per share for the newly publicly traded DuPont subsidiary; We’re betting there will be plenty of positive developments ahead, thanks to Qnity’s exposure to long-term trends like artificial intelligence and high-performance computing. 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. Executives made that clear again Thursday night when they hosted an earnings event that was essentially called “lite.” Investors had already seen Qnity’s numbers for the July-September period as DuPont reported third-quarter results before the opening bell on Thursday. The call Thursday evening gave Qnity management the opportunity to provide additional information and offer their perspective on the results for the separate company, which began regular trading on the New York Stock Exchange on Monday and joins the S&P 500. The stock saw consecutive days of strong gains to start the week, but Qnity shares also pulled back as broader AI trading was hit by a selloff. Thursday night’s big deal: Qnity raised its full-year 2025 sales outlook to $4.7 billion, up $100 million from the forecast provided at its September investor day. This is a pretty good start to its life as an independent firm. Meanwhile, management backed its full-year adjusted EBITDA forecast to $1.4 billion, a margin of about 30%. EBITDA, short for earnings before interest, taxes, depreciation, and amortization, is a measure of business profitability. One thing to keep in mind is that Qnity’s $1.4 billion target is on a “pro-forma basis,” meaning it has been modified to reflect what Qnity’s adjusted EBITDA would look like if it were a standalone company for the full year. This is standard practice in splits, giving investors a financial starting point for their evaluation. The profit measurements discussed below are also based on a pro-forma basis. Third quarter results In the three months ending September, Qnity’s sales reached $1.3 billion, up 11% year-over-year, or 10% organically, supporting currency fluctuations. Adjusted EBITDA was $370 million, up 6% year-over-year, representing a margin of roughly 29%. Adjusted net income increased approximately 16% year over year. It should be noted that reported results and guidance were impacted by approximately $40 million in sales pulled into the third quarter as customers sought to get orders in as soon as possible. With this forward adjustment, third-quarter organic sales would be closer to 7%, while guidance for the fourth quarter would be slightly stronger. “We have delivered six consecutive quarters of sustained, strong organic growth,” CEO Jon Kemp said in a statement Thursday night. “With a strong innovation pipeline, a true competitive advantage, we continue to build momentum and invest in the fastest-growing, highest-margin areas, and we are making meaningful progress by shaping a culture that keeps us focused on what really matters: our customers, innovation, speed and people, and enables us to deliver with purpose and agility at the speed our customers need.” Digging a little deeper, Qnity reports two segments emerge: Semiconductor Technologies and Interconnect Solutions. The Semiconductor Technologies segment is home to products used directly in a complex integrated circuit manufacturing process (for example, leading foundries TSMC and Samsung are customers) as well as materials used in certain TV displays and other electronic displays. Korean electronics giant LG is another customer of Qnity. The Interconnect Solutions unit provides the materials used in the advanced packaging of the chips, which is an increasingly important step in the manufacturing process of artificial intelligence processors. It’s also home to thermal management chemicals, which are also benefiting from the AI boom because the performance capabilities of AI chips generate a lot of heat. There may seem to be many similarities between the two parts because they are closely related. Seven of Qnity’s top 10 customers rely on solutions in both business segments, Kemp said. In the third quarter, Semiconductor Technologies saw sales growth of roughly 8%, driven by a 9% increase in sales volume; This is a sign that demand is increasing rather than relying on price increases to increase profitability. The increase in volume was “driven by content gains in advanced node migrations and improved customer usage rates,” CFO Matthew Harbaugh said on the call. Interconnect Solutions, meanwhile, achieved approximately 15% year-over-year sales growth, driven by a 15% increase in volume “driven by AI-enabled technology on-ramps,” Harbaugh said. The finance chief also said the segment is benefiting from growth in industrial end markets such as aerospace, defense and automotive. Q ALL mountain Qnity’s stock performance. Commentary As previously mentioned, Thursday night’s call was a great opportunity to hear from Kemp and Harbaugh as they build their relationships with the investment community. Kemp was previously president of DuPont’s Electronics and Industrial division. Harbaugh, who joined the team in May, was an outside hire with experience with spin-offs. During the call, Kemp offered some thoughts on the trends driving the business. “The recovery in the semiconductor market continues to be supported by the adoption of advanced technologies for AI applications, including advanced logic, high-bandwidth memory, advanced packaging and thermal solutions.” It also noted that customer usage rates showed a slight improvement sequentially. Harbaugh noted that one of Qnity’s strengths, especially in the Interconnect Solutions segment, is its access to the fastest-growing segments of the semiconductor industry. As the latest earnings report from old-school chip maker Texas Instruments shows, the AI chip market is much hotter than analog chips. The different performance in the segments of the club name Broadcom also demonstrates this dynamic. “While the broader semiconductor market is still recovering, we have seen rapid growth in various parts of our Interconnect segment, highlighting the strength of our portfolio diversity across the entire semiconductor and advanced electronics value chain,” Harbaugh said. he said. “As we look ahead, our fundamentals remain strong.” Another reason we like Qnity’s prospects, given the global trade tensions we face, is its global footprint. Kemp called Qnity’s local-for-local approach “a key strategic advantage underlying our performance.” “Our manufacturing and R&D facilities are located close to customers, increasing customer proximity, strengthening supply chain flexibility and increasing agility to ensure consistent, stable supply,” he said. “With this footprint and local engagement model, we offer the best of both worlds—close customer collaboration backed by capabilities at scale.” (Jim Cramer’s Charitable Trust long Q, AVGO. See here for a complete list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. 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