Why Navitas Semiconductor Skyrocketed Yet Again Today

Shares of Navitas Semiconductor (NASDAQ: NVTS) skyrocketed as much as 70.7% on Tuesday, before settling down to a 40.9% gain as of 1:22 p.m. ET.

The massive gain comes on the heels of last Wednesday's near-200% gain after hours, after the company announced a potentially game-changing deal with Nvidia (NASDAQ: NVDA).

Today, Navitas announced it would be following up that bit of good news with an equity sale, which aims to raise $50 million at much higher prices. While an equity raise would normally send a stock down, the stock is actually increasing again today.

Navitas sets its sites higher

Coming into last week's announcement, Navitas seemed like a speculative small-cap company. Last quarter's revenue was just $14 million, a decline from the prior-year quarter, with operating losses of $25.3 million. With small volumes of declining revenue, short interest in the company had crept up to 12.8% of shares outstanding and 18.4% of the float as of April 30.

However, things may have changed last Wednesday, when Navitas issued a press release announcing its gallium nitride (GaN) and silicon carbide (SiC) chips had been selected to go into Nvidia's upcoming 800V DC architecture, which will be used in Nvidia's upcoming Rubin Ultra-based data center chip systems.

GaN and SiC-based chips have been somewhat of a niche product in the chip industry to date, and only cost-effective for the most trying environments where higher voltages under higher temperatures are required, such as electric vehicles and infrastructure. And while EVs have been in a prolonged slump, artificial intelligence (AI) data centers are becoming increasingly power-hungry, to the point where using more SiC and GaN chips may now be required.

The announcement likely produced a massive short squeeze last week. However, today, Navitas announced a new at-the-market (ATM) offering, whereby the company can sell shares in the open market to raise cash. In the press release, the company announced it had sold all the prior $50 million ATM authorization, and had signed up for a new ATM program of similar size.

Image source: Getty Images.

Selling at high prices is met with applause

Normally, when a company announces it has diluted shareholders and may continue to do so, the stock goes down; however, it appears investors actually cheered this announcement. Likely, the company sold a lot of stock last week after the big surge, so investors may believe it raised that cash at attractive prices.

Of note, the company only had $75 million in cash as of the end of last quarter, so raising more cash at attractive prices to extend Navitas' runway was met with applause.

Navitas is hard to value right now, as it's unclear as to the impact of the Nvidia contract. While last week's announcement was certainly great news, I'd be wary of chasing any stock merely on the mention of a partnership with or investment from Nvidia. These moves are driven by hype-by-association, with unclear tangible effects.

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