The 1 Tech Stock I Keep Adding To on Red Days -- and Why I'll Do It Again
Key Points
Netlist owns patents that form the foundation of memory chips, resulting in legal wins against Micron and Samsung that can produce meaningful licensing royalties in the future.
The company's hardware is in the early stages of high sequential growth.
Netlist is a legal AI bottleneck that knows how to produce its own in-demand products, giving shareholders multiple paths to higher returns.
- 10 stocks we like better than Netlist ›
Tech stocks have been some of the best performers in the entire stock market. The State Street Technology Select Sector SPDR ETF has gained more than 150% over the past five years, while the S&P 500 is only up by a little more than 75% over the same stretch.
That's the power of the tech sector, and with some stocks performing better than others, digging for underrated picks and buying dips can be quite rewarding. I have been steadily accumulating Netlist (OTC: NLST) amid pullbacks and will keep doing so. Here's what makes the tech stock special.
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An AI stock with a legal lottery ticket
Netlist is a unique artificial intelligence (AI) stock. Not only does it have rising hardware sales like other picks, but it's also winning legal battles against memory chipmakers Micron and Samsung. Netlist has key patents that are fundamental for high-performance memory chips and DDR5 memory modules that have become hot commodities amid the AI boom.
Not only can Netlist win settlements, but it might also be eligible for licensing royalties, similar to its deal with SK Hynix. While the court battles are ongoing, Netlist has won verdicts against both companies over patent right violations.
The jury verdicts from Micron and Samsung alone are worth almost Netlist's entire market cap. However, Netlist can also negotiate licensing deals, and the longer the two memory chipmakers drag their feet in this case, the more consequential the damages may become.
Micron and Samsung continue to sell out of memory chips amid booming demand. Impressive financial growth and vast backlogs have turned those two stocks into top performers, but issues with Netlist patents can strangle all of those sales. Netlist can issue an injunction that bans the sale of these memory chips in the U.S., ruining backlogs in the process. Netlist followed a similar playbook with SK Hynix and eventually signed a licensing deal.
Netlist gets far more negotiating power as the AI boom continues, which can result in better licensing terms. This small company has silently become a major part of the AI bottleneck due to its patents. Any meaningful progress or updates regarding court cases can create sharp volatility for the stock.
Netlist isn't just relying on legal outcomes
As exciting as the legal lottery ticket component of Netlist's stock is, that's not the only reason I'm building my position on red days. The company has tangible revenue and net income growth that stems from its own memory products.
It makes sense that the company with foundational patents for key parts of the AI boom also knows how to create its own products in the industry. Netlist CEO C.K. Hong told investors in its Q1 2026 press release that the company "remain[s] well positioned to capitalize on AI memory technologies -- DDR5 and HBM -- through our products and IP assets."
The numbers certainly back up Hong's claim. Net sales reached $104.9 million, marking a 262% year-over-year improvement. The company also flipped to profitability, reporting $8.6 million in net income compared to a $9.5 million loss in the same quarter last year.
The $104.9 million in revenue also represents a 38.6% sequential improvement. That comes after Netlist reported $75.7 million in Q4 2025 sales, which was a 79% sequential improvement.
Consecutive quarters of high sequential growth can be an indicator of a breakout AI stock. It follows the pattern of Sandisk and Micron, which delivered multiple quarters of high sequential growth before most investors noticed the opportunity.
Netlist is up to two consecutive quarters of high sequential growth. The company didn't offer any quantitative guidance after sharing Q1 results, other than optimistic remarks. While investors may have liked some insights about Q2 numbers, it's the same approach Netlist took when it shared Q4 2025 results. Netlist hasn't been mentioning exact revenue guidance ranges as other corporations do, but that hasn't stopped the small AI company from delivering exceptional revenue growth in recent quarters.
If Netlist continues to deliver high sequential growth and scores big legal wins that result in licensing royalties, its stock should soar. That's why the growth stock looks attractive on red days.
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Marc Guberti has positions in Netlist. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.
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