Will this penny stock be the next Nvidia?!

Nvidia shares have exploded 29 times in value since 2019, but can this semiconductor penny stock do the same? Zaven Boyrazian investigates.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Surprised Black girl holding teddy bear toy on Christmas

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investing in the right penny stocks can deliver explosive returns similar to that of Nvidia. As a reminder, the semiconductor giant has so far been the biggest winner of the artificial intelligent (AI) technology race, with shares exploding by over 2,900% in the last five years.

Finding a business capable of replicating such gains in a similar time frame isn’t easy. However, there are a lot of promising micro-cap enterprises with similar levels of explosive potential. In particular, EnSilica (LSE:ENSI) seems to be making impressive strides that could propel it far beyond its current market value.

Robotics, Industrials and AI

Much like Nvidia, EnSilica is a chipmaker specialising in Application Specific Integrated Circuits (ASICs). These are custom-tailored chips designed to fulfil a specific purpose. And they’re proving to be essential within cutting-edge technologies across multiple sectors. This includes robotics, 5G networks, self-driving car radar systems, and even wearable healthcare monitoring systems, all of which EnSilica already has a foothold in.

What’s more, the surge in demand’s already translating into tangible results. Looking at its latest trading update, the firm’s expecting to deliver record-high sales of £25m for its fiscal year, which ended in May. And, impressively, unlike many of its peers, the business is actually profitable!

The group’s suffered some significant impact from the recent economic turbulence that’s led to some project delays. But these hold-ups are expected to unwind throughout the rest of 2024, placing EnSilica in a strong position to deliver even better results in its 2025 fiscal year.

That’s an opinion management seems to share with guidance calling for revenue to reach £30m and EBITDA to land at £5m.

Both represent chunky levels of double-digit growth. And when compared to the estimated $500m (£394m) opportunity pipeline, EnSilica seems to have only scratched the surface of its long-term potential.

Risk and reward

Assuming the business successfully hits its targets and capitalises on all of its opportunities, investors will undoubtedly enjoy a massive boost to their wealth. However, it’s important to keep expectations in check since, as with all small enterprises, a spanner is likely to be thrown into the works at some point along the line. And even if the best-case scenario does emerge, there’s still the question of cyclicality.

Much like Nvidia, EnSilica’s a cyclical business with periods of stellar growth followed by stagnant demand. The balance sheet doesn’t appear to have any major flaws, but it’s still relatively cash-light, with only £1.3m at hand at the end of April 2024.

Subsequently, like many penny stocks, the firm recently executed a round of equity fundraising. This action ended up raising £5.2m, giving management more financial flexibility moving forward. But it’s also triggered a notable chunky of equity dilution – something that could easily occur again, should more money be needed.

The bottom line

Compared to the average penny stock, EnSilica looks quite impressive. The business is profitable, growing at a rapid pace, and has tremendous long-term potential. But it’s also critical to highlight that its future success is far from guaranteed. And with a lot of its current valuation seemingly being driven by investor expectations, it’s going to be a volatile ride.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Surely, the Rolls-Royce share price can’t go any higher in 2025?

The Rolls-Royce share price was the best performer on the FTSE 100 in 2023 and so far in 2024. Dr…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Here’s how an investor could start buying shares with £100 in January

Our writer explains some of the things he thinks investors on a limited budget should consider before they start buying…

Read more »

Investing Articles

Forget FTSE 100 airlines! I think shares in this company offer better value to consider

Stephen Wright thinks value investors looking for shares to buy should include aircraft leasing company Aercap. But is now the…

Read more »

Investing Articles

Are Rolls-Royce shares undervalued heading into 2025?

As the new year approaches, Rolls-Royce shares are the top holding of a US fund recommended by Warren Buffett. But…

Read more »

Investing Articles

£20k in a high-interest savings account? It could be earning more passive income in stocks

Millions of us want a passive income, but a high-interest savings account might not be the best way to do…

Read more »

Investing Articles

3 tried and tested ways to earn passive income in 2025

Our writer examines the latest market trends and economic forecasts to uncover three great ways to earn passive income in…

Read more »

Investing Articles

Here’s what £10k invested in the FTSE 100 at the start of 2024 would be worth today

Last week's dip gives the wrong impression of the FTSE 100, which has had a pretty solid year once dividends…

Read more »

Investing Articles

UK REITs: a once-in-a-decade passive income opportunity?

As dividend yields hit 10-year highs, Stephen Wright thinks real estate investment trusts could be a great place to consider…

Read more »