CEVA earnings on deck: Can licensing sustain royalty wait?

CEVA Inc is set to release its second-quarter earnings on Monday, before the market opens, with analysts anticipating a sequential improvement in the semiconductor intellectual property licensor's performance. As the company steps into a pivotal transition year in anticipation of a royalty inflection expected in 2027, Wall Street projections anticipate earnings of 7.3 cents per share and revenue of $28.15 million for the quarter ending June 2024, marking an 82% increase in earnings and a 4% rise in revenue compared to the previous quarter.

Year-on-year, revenue is forecasted to grow by nearly 10%. Analysts have rated the stock as a Buy, with a consensus price target of $50, suggesting a 29% upside potential from its current share price of $35.59. Seven out of nine analysts covering the stock recommend buying, while the remaining two have rated it as a hold. Over the past 60 days, EPS estimates have seen a modest increase of 0.38%, while revenue estimates have risen by 0.12%.

Despite a more than doubling of the stock price from its 52-week low of $17.02, it remains below its $51.60 high reached earlier in the year, prompting some caution from analysts. One benchmark analyst, Gary Mo, initiated coverage with a Hold rating in mid-July, citing a rich valuation despite constructive fundamentals. The core challenge for CEVA lies in whether its licensing momentum can sustain growth while it waits for design wins to translate into royalty revenue.

As the industry evolves towards edge AI and data-intensive applications, connectivity is emerging as a crucial layer in the stack, and CEVA aims to capitalize on system-level wireless solutions. Investors will closely monitor licensing deal flow and average contract value. In Q1, CEVA signed 14 IP licensing agreements across connectivity, AI, and satellite communications, including a significant Bluetooth High Data Throughput win that signaled a strategic shift towards integrated platforms rather than component IP sales.

The momentum from these deals in Q2 will be crucial. The timeline for royalty conversion is also vital. Ruben Roy, a Stifel analyst who raised his price target to $50 in July, views 2026 as a transition year, with 2027 potentially marking the inflection point when prior licensing wins begin to convert into royalties. CEVA recently reported a beat on first-quarter expectations, delivering earnings of $0.04 per share versus the consensus of $0.02, alongside revenue of $27.0 million, surpassing the forecasted $26.14 million.

The company also announced a major AI licensing deal with a significant U.S. software platform company in early July, confirming its expansion into edge AI processor IP. The outcomes of Monday's earnings call will provide insights into whether CEVA can maintain its licensing strength while advancing toward the anticipated royalty inflection—an outcome that will determine whether the stock's recent gains prove sustainable or are merely premature.