Jefferies downgrades Nordic Semiconductor on growth, margin concerns

Investing.com -- Jefferies has downgraded Nordic Semiconductor (OL:NOD) to “underperform” from “buy,” lowering its price target to NOK102 from NOK164, citing slower expected revenue growth, rising customer concentration risks, and intensifying competition in Bluetooth Low Energy (BLE), in a note dated Wednesday.  

The revised target implies a 27% downside from the June 17 closing price of NOK138.90.

Jefferies analysts said current 2026 growth expectations are too high, projecting EBITDA of $100 million, 13% below consensus, and revenue 6% lower than market forecasts. 

The brokerage now applies an 18x EV/EBITDA multiple for 2026, compared to the consensus 21.8x, reflecting expected de-rating amid normalizing growth.

Inventory corrections at Nordic bottomed in Q1 2024, ahead of analog peers such as STMicroelectronics (STM) and Infineon (OTC:IFNNY) (IFX), which Jefferies argues limits further cyclical upside. 

Nordic shares have risen 62% since March 2024, while the average for analog peers fell 8% over the same period, a divergence Jefferies considers unwarranted.

Customer concentration has grown sharply, with the top 10 customers accounting for 57% of 2024 sales, up from 29% in 2018. 

Key clients include Apple (NASDAQ:AAPL), Logitech (NASDAQ:LOGI), and Dexcom (NASDAQ:DXCM). Jefferies flagged potential risk if Apple were to internalize chip development, noting past examples such as its shift to in-house modems and processors.

Jefferies also highlighted the consensus assumption of a broad market recovery in 2026 as overly optimistic.

Its reverse sum-of-the-parts analysis indicates implied broad market growth of 26%, exceeding Nordic’s guided 17% CAGR for short-range products. 

Jefferies expects 2026 group revenue to grow around 15%, well below the 21% forecasted by the street.

Competition in BLE is also intensifying. Silicon Labs, a key rival, recently guided for 80% Bluetooth growth in 2025. 

At the same time, Nordic’s latest nRF54 series has shown no gross margin uplift compared to the prior nRF52 generation, indicating limited pricing power despite a move to more advanced chip nodes.

Nordic’s edge-AI exposure remains nascent. While its chip is used in Samsung’s ring device, Jefferies estimates this contributes less than 0.2% of group revenue. The recent acquisition of Neuton AI is not expected to materially impact sales through 2026.

Rising R&D spend, including a sharp increase in capitalized development costs, doubling from $9 million to $20 million annually, also adds pressure to margins. 

EBITDA margins are expected to lag peers, falling 193 basis points below consensus in 2027. With limited catalysts and stretched expectations, Jefferies sees downside risk to Nordic’s shares if consensus growth forecasts are revised lower in the coming quarters.