Why Navitas Followed Last Week's Monster Gain With Another This Week

Shares of Navitas Semiconductor (NASDAQ: NVTS) rallied as much as 59.2% this week, before settling into a 22.2% gain through Thursday trading, according to data from S&P Global Market Intelligence.

Navitas rocketed roughly 150% last week on the back of an announcement that its gallium nitride (GaN) and silicon carbide (SiC) chips would be used in Nvidia's next-generation Kyber data center infrastructure, which will house the upcoming Nvidia Rubin systems set to hit the market in 2027.

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This week, Navitas followed up that gain by selling stock at those newly high prices. While news of shareholder dilution is normally a negative for a stock, in this case, investors cheered the capital raise, as it now de-risks this small-cap company.

Selling high is all good in investors' eyes

On Tuesday, May 27, Navitas filed with the Securities and Exchange Commission (SEC) for an at-the-market stock sale program, in which it could sell stock to raise money on the open market through Jefferies investment bank, for up to $50 million. In the filing, Navitas also disclosed that it had exhausted its prior $50 million program.

Normally, raising money through selling stock would cause a negative reaction from the market; however, it appears investors are cheering Navitas raising cash, which will extend the company's runway to when the Kyber systems will begin to be implemented.

In the previous quarter, Navitas saw its revenue decline 40%, with operating losses of $25.3 million. The company also had just $75 million in cash on the balance sheet. So, raising cash at better prices appeared to de-risk the near-term outlook.

Navitas is a boom-or-bust story

When a small company inks a big partnership with Nvidia, that's a recipe for a potential boom. However, it's unclear how much revenue Navitas is going to see from this partnership, or when. After all, Navitas was just one of several power chip providers named in the Kyber effort, per Nvidia's blog.

Therefore, investors interested in high-upside, high-risk situations in the artificial intelligence sector should continue to follow this story. If anything, the power demands of next-generation AI chips appear to need SiC and GaN chips in greater amounts, expanding Navitas' end market beyond electric vehicles.

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