IoT chipmaker Nordic Semiconductor faces market headwinds as weak demand and high inventories threaten growth expectations
Key Takeaways
- BofA double-downgrades Nordic Semiconductor to “underperform” from buy rating, slashing price target to NOK 99 from NOK 139 amid weak IoT market conditions and overly optimistic consensus projections.
- EBITDA forecasts cut significantly below consensus with BofA projecting FY25 and FY26 EBITDA to be 24% and 20% lower than market expectations, respectively.
- Valuation concerns at historical peak as Nordic stock trades at 26x FY26E EV/EBITDA, near its historical high, despite weakening consumer demand and elevated distributor inventories.
Introduction
BofA Securities has delivered a sharp rebuke to Nordic Semiconductor, double-downgrading the Norwegian chipmaker to “underperform” from buy in a move that signals mounting concerns over the IoT market’s trajectory. The downgrade comes with a substantial price target reduction to NOK 99 from NOK 139, maintaining an 18x FY26 EV/EBITDA valuation within Nordic’s historical range of 11-31x.
The decision reflects BofA’s view that consensus projections for the wireless connectivity chip specialist remain overly optimistic despite the company’s recent operational improvements. Nordic’s stock currently trades at 26x FY26E EV/EBITDA, approaching its historical peak and raising valuation red flags for the investment bank.
Key Developments
The downgrade follows Nordic’s September 2024 Capital Markets Day, where management forecast only “modest growth” for 2025 without supporting evidence for accelerated expansion in 2026. This cautious outlook contrasts sharply with the company’s recent Q1 2025 performance, which showed revenue of $155 million representing a 108% year-over-year increase.
BofA projects significantly lower EBITDA figures than market consensus, with FY25 and FY26 estimates running 24% and 20% below prevailing forecasts respectively. The bank considers Q1’s strong growth atypical, attributing the surge to large orders rather than widespread demand recovery across the IoT sector.
Operational metrics show mixed signals for Nordic’s trajectory. The company reduced cash operating expenses from $70 million in Q4 2024 to $62 million in Q1 2025 while trimming inventory by $28 million. However, revenue outside the top 10 customers remained approximately 40% below peak levels, indicating persistent challenges in customer base diversification.
Market Impact
Nordic’s concentrated customer base creates heightened volatility, particularly given the company’s short lead times and limited uptake of its nRF54 series products. The semiconductor specialist faces additional pressure from Chinese competition, which constitutes 10% of total revenue, where pricing dynamics continue to limit revenue recovery potential.
BofA’s revenue growth projections diverge significantly from consensus expectations. While market forecasts anticipate FY25 and FY26 revenue growth of 23% and 21% respectively, the investment bank predicts more modest expansion of 15.5% and 19.5%. This gap reflects underlying concerns about sustainable demand patterns in Nordic’s core markets.
Strategic Insights
The downgrade highlights broader structural challenges facing IoT-focused semiconductor companies. According to Investing.com, weakening consumer demand, elevated distributor inventories, and uncertainty over price increases at major customers like Logitech contribute to BofA’s cautious stance.
GlobalFoundries, a key foundry partner, has indicated cautious IoT sector forecasts for the second half, expecting full-year demand to remain flat. This external validation supports BofA’s negative outlook for Nordic’s Bluetooth Low Energy and Wi-Fi chip demand segments.
Nordic’s strategic focus on expanding wireless connectivity offerings, particularly in IoT and Bluetooth-enabled solutions, positions the company to capitalize on long-term growth trends. The company’s product portfolio encompasses advanced Bluetooth, Thread, Zigbee, and cellular IoT chipsets essential for smart devices, wearables, and industrial automation applications.
Expert Opinions and Data
Despite operational improvements, Nordic faces the semiconductor industry’s broader challenge of justifying premium valuations amid cyclical demand shifts. The company reduced its workforce by 6% year-over-year, reflecting industry-wide cost optimization efforts in response to uncertain macroeconomic conditions.
Financial performance shows Nordic’s resilience with Q1 2025 net income of $1.15 million, marking a significant turnaround from a $25.7 million loss in Q1 2024. Gross margins remained steady at approximately 50%, while EBITDA margins improved to 9.5% for the third consecutive quarter.
Nordic forecasts Q2 2025 revenue between $145 million and $165 million, with gross margins expected to maintain the 50% level. The company projects 13% annual revenue growth over the next three years, outpacing the industry’s 9.4% expected growth rate.
Conclusion
BofA’s dramatic downgrade creates a stark contrast between Nordic’s improving operational fundamentals and deteriorating market sentiment. The disconnect between short-term performance metrics and longer-term growth projections reflects broader uncertainty in the IoT semiconductor sector.
Nordic’s current position exemplifies the challenges facing specialized chipmakers navigating cyclical demand patterns while maintaining premium valuations. The company’s ability to diversify its customer base and accelerate adoption of next-generation products will determine whether it can bridge the gap between current market pessimism and its long-term growth ambitions.
