Is Silicon Motion Technology a Buy After Dropping More Than 20% From Its High?

Silicon Motion Technology (NASDAQ: SIMO) recently shed more than 20% of its value from all-time highs, but the dip looks like a buying opportunity. Investors have been buying this dip, already starting to close the gap between the stock's 20% downturn.

Is this post-correction recovery sustainable, or is the dip bound to intensify?

Here's what investors should know about this under-the-radar AI stock.

Image source: Getty Images.

What Silicon Motion Technology does

Silicon Motion Technology specializes in NAND flash controllers, a component that goes inside solid-state drives and other AI memory products. The company's products are vital components of the AI boom, and that has translated into compelling financial results.

The company delivered 23% sequential sales growth in the first quarter. This is normally a slow quarter for Silicon Motion Technology, but proved to be a stand-out performance instead. Its Ferri and Boot Drive products, key parts of the AI build-out, commanded more than 750% year-over-year revenue growth and more than tripled sequentially.

Overall sales more than doubled year over year, but it was Silicon Motion Technology's Q2 guidance that truly captured people's attention. A projected 20% sequential growth rate in Q2 showed investors that Silicon Motion Technology is exhibiting the same pattern of meaningful sequential growth that turned Micron and Sandisk into superstar growth stocks.

The bullish J.P. Morgan Conference

There haven't been any concrete financial updates since Silicon Motion Technology reported Q1 results in the end of April. However, the company's executives recently spoke at J.P. Morgan's 54th Annual Global Technology, Media, and Communications Conference.

Silicon Motion Technology CEO Wallace C. Kou and CFO Jason Tsai participated in a fireside chat that tipped investors off on significant bullish developments. The conference took place on May 19, more than halfway into Q2. Kou mentioned that they are focused on retaining and growing the customer base instead of raising gross margins right away. He attributed this to the goal of aggressively growing the company's top line, but dropped a massive hint about future results.

"So product mix, we'll maintain 50% corporate gross margin. But because our goal is to grow top line aggressively. So wait for our Q2 earnings call and with the Q3 guidance, you can probably understand how fast we can grow in 2027," Kou said.

After being more than halfway through Q2 and having visibility into future sales, Kou has more information than most about Silicon Motion Technology's future results, and he sounded pretty confident at the conference. Silicon Motion Technology CFO Tsai also had bullish commentary that indicates a multi-year supercycle.

"Some of these big opportunities in enterprise and boot drives and automotive are really just beginning to scale toward the latter part of this year. That will continue to fuel long-term growth into '27, '28 and beyond," Tsai said.

This commentary, combined with Silicon Motion Technology's Q1 results, suggests that investors are still early. The dip looks like a compelling long-term buying opportunity.

JPMorgan Chase is an advertising partner of Motley Fool Money. Marc Guberti has positions in Silicon Motion Technology. The Motley Fool has positions in and recommends JPMorgan Chase and Micron Technology. The Motley Fool has a disclosure policy.