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Rambus stock continues to face a steady decline due to prolonged pressure on its top-line growth because of reduced spending on traditional servers by enterprise customers. The demand for conventional servers, which have historically driven Rambus' memory interface and security solutions, is declining. The broader enterprise market is shifting its focus toward artificial intelligence (AI) and machine learning workloads that require specialized hardware like graphics processing units rather than traditional CPU-based servers.
This shift results in less capital allocation toward traditional server setups, thereby reducing the need for Rambus’ memory solutions designed for these systems. With capital expenditures increasingly favoring AI-driven systems, RMBS is experiencing reduced demand in its core business.
These factors have also contributed to Rambus reporting lower-than-expected revenues for the second and third quarters of 2024, further eroding investor confidence and forcing its stock price down. To counter these headwinds, RMBS has already laid the foundation on which it can capitalize on emerging market opportunities, particularly in the AI and data center sectors.
Rambus YTD Performance
Image Source: Zacks Investment Research
Rambus Poised to Capitalize on the Growing AI Market
High-performance memory products designed by Rambus, including DDR5 and high bandwidth memory (HBM), are crucial for AI data centers that process large amounts of data efficiently.
The company’s strategic focus on next-generation memory solutions places it in a strong position to benefit from the increasing demand for AI-specific infrastructure. The introduction of new products, including Client Clock driver chip, PCIe 7 IP solutions and HBM4 controller intellectual property chips for next-generation AI workloads, will drive revenues over the long run.
Rambus is also expanding its security portfolio to address the needs of next-generation connected devices and cloud infrastructures. With increased digitalization and security concerns, RMBS' secure memory and cryptography solutions will play a critical role in protecting sensitive data and intellectual property. This provides a strong long-term growth avenue, as security becomes a top priority in data-driven industries like healthcare, finance and telecommunications.
Tech Giants Adopting Rambus Products
Rambus has always been at the forefront of the chip design revolution, bringing in the patents of its industry-leading products and providing them to other companies. Industry leaders like Advanced Micro Devices (AMD - Free Report) , NVIDIA (NVDA - Free Report) , Broadcom, Cisco (CSCO - Free Report) , IBM, Marvell, MediaTek, Micron, Qualcomm and STMicroelectronics use Rambus’ patented technologies and solutions.
Rambus and Advanced Micro Devices signed the first patent license agreement in the mid-2000s. The initial agreement allowed AMD to use RMBS’ patented technologies in various products, including those used in DDR2, DDR3, FB-DIMM, PCI Express and XDR controllers. NVIDIA has been using Rambus’ technology for more than a decade now.
RMBS and Cisco have been in collaboration for a decade with the latter using Rambus’ security technologies in its products.
These advancements and tailwinds are likely to contribute to Rambus’ top-line growth. The Zacks Consensus Estimate for RMBS’ 2024 top line is pegged at $577.9 million, indicating year-over-year growth of 3.5%. The Zacks Consensus Estimate for 2024 earnings is pegged at $1.84, indicating a year-over-year increase of 2.8%.
What Should Investors Do?
Although Rambus is experiencing a slowdown in demand from the traditional market, the company is set to capitalize on emerging markets like data center and AI. Its partnerships with industry leaders like AMD, NVIDIA and Cisco are also a positive sign.
Image: Bigstock
Rambus Plunges 23% Year to Date: How Should You Play the Stock?
Rambus (RMBS - Free Report) shares have plunged 22.9% year to date, underperforming the Zacks Electronics - Semiconductors industry, Zacks Computer and Technology sector and the S&P 500 index’s return of 33%, 25.7% and 23.4%, respectively.
Rambus stock continues to face a steady decline due to prolonged pressure on its top-line growth because of reduced spending on traditional servers by enterprise customers. The demand for conventional servers, which have historically driven Rambus' memory interface and security solutions, is declining. The broader enterprise market is shifting its focus toward artificial intelligence (AI) and machine learning workloads that require specialized hardware like graphics processing units rather than traditional CPU-based servers.
This shift results in less capital allocation toward traditional server setups, thereby reducing the need for Rambus’ memory solutions designed for these systems. With capital expenditures increasingly favoring AI-driven systems, RMBS is experiencing reduced demand in its core business.
These factors have also contributed to Rambus reporting lower-than-expected revenues for the second and third quarters of 2024, further eroding investor confidence and forcing its stock price down. To counter these headwinds, RMBS has already laid the foundation on which it can capitalize on emerging market opportunities, particularly in the AI and data center sectors.
Rambus YTD Performance
Image Source: Zacks Investment Research
Rambus Poised to Capitalize on the Growing AI Market
High-performance memory products designed by Rambus, including DDR5 and high bandwidth memory (HBM), are crucial for AI data centers that process large amounts of data efficiently.
The company’s strategic focus on next-generation memory solutions places it in a strong position to benefit from the increasing demand for AI-specific infrastructure. The introduction of new products, including Client Clock driver chip, PCIe 7 IP solutions and HBM4 controller intellectual property chips for next-generation AI workloads, will drive revenues over the long run.
Rambus is also expanding its security portfolio to address the needs of next-generation connected devices and cloud infrastructures. With increased digitalization and security concerns, RMBS' secure memory and cryptography solutions will play a critical role in protecting sensitive data and intellectual property. This provides a strong long-term growth avenue, as security becomes a top priority in data-driven industries like healthcare, finance and telecommunications.
Tech Giants Adopting Rambus Products
Rambus has always been at the forefront of the chip design revolution, bringing in the patents of its industry-leading products and providing them to other companies. Industry leaders like Advanced Micro Devices (AMD - Free Report) , NVIDIA (NVDA - Free Report) , Broadcom, Cisco (CSCO - Free Report) , IBM, Marvell, MediaTek, Micron, Qualcomm and STMicroelectronics use Rambus’ patented technologies and solutions.
Rambus and Advanced Micro Devices signed the first patent license agreement in the mid-2000s. The initial agreement allowed AMD to use RMBS’ patented technologies in various products, including those used in DDR2, DDR3, FB-DIMM, PCI Express and XDR controllers. NVIDIA has been using Rambus’ technology for more than a decade now.
RMBS and Cisco have been in collaboration for a decade with the latter using Rambus’ security technologies in its products.
These advancements and tailwinds are likely to contribute to Rambus’ top-line growth. The Zacks Consensus Estimate for RMBS’ 2024 top line is pegged at $577.9 million, indicating year-over-year growth of 3.5%. The Zacks Consensus Estimate for 2024 earnings is pegged at $1.84, indicating a year-over-year increase of 2.8%.
What Should Investors Do?
Although Rambus is experiencing a slowdown in demand from the traditional market, the company is set to capitalize on emerging markets like data center and AI. Its partnerships with industry leaders like AMD, NVIDIA and Cisco are also a positive sign.
Considering all these factors, we suggest investors to retain this Zacks Rank #3 (Hold) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.