Why Navitas Semiconductor Rallied Today

Shares of power-oriented semiconductor company Navitas Semiconductor (NASDAQ: NVTS) rallied on Tuesday, vaulting 17.1% on Tuesday as of 2:18 p.m.

Navitas' move higher was all the more notable, as the major indexes were down on the day at that time.

While there wasn't any company-specific news today, Navitas appears to have become one of the new cohort of meme stocks. Many members of the new meme stock lineup are up today, as traders apparently seek off-the-radar trades.

But unlike newer meme stocks such as Avis Budget Group (NASDAQ: CAR) or Beyond Meat (NASDAQ: BYND), Navitas has the potential for real AI-related growth, even if that growth has yet to materialize.

Navitas defying the shorts

As of March 31, 18.8% of Navitas' shares outstanding and 25.1% of its public float were sold short. That amount of the stock being sold short certainly sets up the possibility for a squeeze should anything go Navitas' way.

There is some valid reason for the short-sellers' skepticism. Navitas is attempting a business transformation under new CEO Chris Allexandre, who took over in August of last year. The company is shedding its legacy business in low-cost smartphone chargers and accessories while trying to build new silicon carbide (SiC) and gallium nitride (GaN) chips to power the next generation of AI data centers. Around this time last year, Nvidia (NASDAQ: NVDA) named Navitas as a potential partner, along with several other power chip designers, for Nvidia's upcoming 800-volt data center architecture.

While the possibility of becoming a bona fide "AI stock" has sent shares drastically higher, the transformation is taking a toll on near-term results. Revenue plunged 60% in the fourth quarter to just $7.3 million -- a paltry amount of revenue for a stock with a $3.6 billion market cap, following today's rally.

Yet there remains hope. In its last earnings release, management noted that its high-power products accounted for the majority of revenue for the first time. At Nvidia GTC in March, Navitas promoted its new GaN-based power delivery board (PDB) for 800V data center power conversion.

Image source: Getty Images.

Navitas is a stock to watch

While it may be unsettling for Navitas to have risen so much in value on the back of high hopes and expectations, the upside is that the company has raised a substantial amount of cash through equity sales. As of Dec. 31, the company had $237 million in cash on its balance sheet and no debt, with which it can invest to execute the turnaround.

All in all, Navitas remains a very high-risk stock; however, as with any meme stock, there is no limit to how high it can trade on any whiff of good news and/or widespread buying from retail investors.

Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat and Nvidia. The Motley Fool has a disclosure policy.