Why Rambus rallied today | The Motley Fool

Shares Rambus (RMBS 12.66%) on Tuesday, up 11.3% as of 12:36 p.m. ET.

Positive news for Rambus came from yesterday’s third-quarter earnings report, in which Rambus’ net income easily beat expectations. Management also gave positive guidance for the current quarter.

Artificial Intelligence Drives Demand for DRAM

Rambus generates revenue in three ways: memory interface chips, which protect and control the flow of data between the memory chip and the processor or GPU on the server; royalty income through which Rambus licenses its patents to other chip makers; and contract and others that license the physical chip cores as well as service and maintenance fees.

Prices for Rambus chips do not fluctuate as much as for DRAM memory chips, but its revenues still depend heavily on demand for DRAM and the number of server modules sold.

With artificial intelligence (AI) firing on all cylinders and traditional servers coming out of the woodwork, this demand seems high. Rambus’s revenue rose 38.2% to $145.5 million, with earnings per share (EPS) of $0.45. Although earnings per share were technically down year-over-year, the prior-year quarter saw a larger gain from divestitures. And while revenue actually fell slightly short of expectations, net income beat expectations by $0.05.

Management also forecast sequential growth, forecasting fourth-quarter revenue of approximately $160 million, which would represent sequential growth of approximately 10%.

In the press release, management also noted that the company is the first to market modules for the new advanced DDR5 MRDIMM 12800 and RDIMM 8000 modules, which have the potential to significantly expand the company’s market reach and drive growth.

Rambus is well positioned in the AI ​​revolution

Rambus is an under-the-radar company that doesn’t get as much attention as the large-cap chip market leaders, but it could be another big beneficiary of AI. With today’s jump, the stock has traded at roughly 25 times current earnings per share, while the company appears poised for strong growth in the year ahead. In addition, Rambus has about $433 million in cash and no debt, good for about 8% of its market capitalization, and has been repurchasing shares with a $50 million repurchase last quarter.

With Rambus stock still about 30% below its recent highs set earlier this year, it’s definitely an AI name worth adding to your watchlist, even after today’s jump.