Atomera Stock Soars on Hopes of Resurrecting Moore’s Law
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We recently discussed how Moore’s Law is coming to an end which threatens global productivity. Nearly everything around us today that’s considered “high-tech” is here because the power of computing has doubled every two years and plummeted in price – until now.
What’s Moore’s Law?
If you haven’t heard of Moore’s Law, it refers to a statement made in 1965 by Gordon Moore, the co-founder of Intel, who said that the number of transistors in a dense integrated circuit will continue to double every year, and they have ever since the integrated circuit was invented. Another way to say this is that computers become exponentially more powerful as time goes on. One reason for this exponential growth is that the powerful computer chips we design can then be used as a platform to design even more powerful chips. Because of Moore’s law, that smartphone you carry around every day is millions of times more powerful than all of NASA’s combined computing in 1969 that was used to put humans on the moon.
Moore’s Law Comes to An End
While we’ve managed to develop chip technology at a rate that pretty much follows Moore’s law to the letter, recently we’ve realized that we’re not going to keep developing at this pace. In 2015, the CEO of Intel acknowledged that doubling the number of transistors “every 2 years” is more like “every 2.5 years now.” It’s easy to see why the pace of innovation is slowing. Intel is able to increase the density of transistors by shrinking their process technology to make them smaller. Just how small can they go? At some point, they will reach physical limitations that prevent the process from being shrunk further, and they’ll have to look for other ways to boost computing power.
While we are making some progress with entirely new types of computing technology like quantum computing, the more we shrink transistors, the more new problems come up that we need to solve. One company that helps address some problems we face when trying to shrink transistors to keep up with Moore’s law is Atomera Incorporated.
About Atomera Stock
Founded in 2001, California company Atomera (ATOM) is engaged in “the business of developing, commercializing and licensing proprietary processes and technologies for the $450+ billion semiconductor industry.” The company first debuted their shares in a public offering that took place back in 2016 which raised about $24 million. Shares of Atomera haven’t done much since then as investors wait for the meaningful revenues that have been promised. As of today, Atomera has engaged with half of the world’s top semiconductor makers to market their lead product – Mears Silicon Technology (MST).
In simple terms, MST is a thin film of reengineered silicon approximately 10 to 30 nanometers thick which is applied as a transistor channel enhancement to CMOS-type transistors, the most widely used transistor type in the semiconductor industry. With MST technology, transistors can be smaller, faster, more reliable, and more energy efficient. Since MST is an additive and low-cost technology, it can be deployed on an industrial scale with the machines currently being used for semiconductor manufacturing. For all you techies out there, here’s what this technology actually does:
The MST® film creates channels that allow electrons to flow more freely in the plane of the transistor, thereby enhancing drive current, while reducing electron flow or “leakage” in the transverse direction. Our MST® film can also create more controlled doping profiles which allow dopants to be held in the desired locations, thereby reducing variability and improving production yield.
For non-techies, this means that semiconductor manufacturers face more and more challenges as the size of transistors gets smaller. This technology eliminates some of these problems in a cost-effective manner and helps to extend Moore’s Law using existing manufacturing methods. You can read all about the benefits plastered all over the company’s collateral, but today we want to talk about progress being made towards commercialization.
Commercializing MST Technology
When we last looked at Atomera when they had their IPO back in 2016, we noted they were in the “process qualification stage” with leading integrated device manufacturers which means they were validating the technology to see if it works and is cost-effective. Today, we see miniscule revenues and a stock that’s suddenly started marching upwards with increased volume. Could Atomera be on the cusp of realizing their vision?
They say you should always give someone a compliment sandwich when you criticize them. Atomera has been able to raise capital consistently over time, though at lower and lower valuations which is to be expected (issuing new shares dilutes existing shareholders).
- On August 10, 2016, they closed an initial public offering of 3,680,000 shares of common stock at a public offering price of $7.50 per share.
- On October 15, 2018, they closed an underwritten public offering of 2,625,000 shares of common stock at a public offering price of $4.75 per share.
- On May 30, 2019, they closed a registered direct offering of 1,675,000 shares of common stock at a price of $4.00 per share.
- On May 15, 2020, they announced the pricing of an underwritten public offering of 1,760,000 shares of its common stock at a price to the public of $5.00 per share.
The most recent raise was last month when institutional investors purchased 2,024,000 shares of common stock at a public offering price of $5.00 per share. In the past 30 days, shares of Atomera have surged +65% on high volume, giving them a present-day market cap of $170 million at a share price of $8.60. Why would investors bid up the price so high when their last offering priced at $5.00 per share? Maybe the financials will tell us something.
Atomera’s Financials
To date, Atomera has only generated limited revenue from customer engagements for integration engineering services and integration license agreements. They barely breached the $500,000 in revenues mark in 2019.
The above chart shows a certain level of consistency when it comes to managing expenses which come in at about $3.5 million per quarter. Since Atomera is an intellectual property licensing company, we can expect high margins when they start to accrue meaningful revenues. Their proprietary process can simply be plugged into existing semiconductor manufacturing facilities and help extend the semiconductor industry roadmap.
While revenues are dismal, Atomera is burning through cash at a pretty steady rate which helps us understand how long their runway is (runway refers to the amount of time they have to make something happen before needing to raise more money to fund operations). If you’re an investor in Atomera, you’re pretty focused on seeing the revenues come in which help validate their technology. We all know about the promise of MST technology, but what we want to see is progress made towards commercialization.
When Will Atomera Realize Meaningful Revenues?
The latest earnings call from Atomera doesn’t seem to promise too much. The WooHoo Flu is impacting milestones and timelines. They’ve purchased a new tool which will help improve productivity for research and development.
Early on, we identified that a 300-millimeter epi tool was one of the most critical pieces of equipment to enable Atomera to make a big impact in the market, and we are now on the verge of that dream becoming a reality.
Atomera Q1 2020 Results – Earnings Call Transcript – Credit: Seeking Alpha
Immediately afterwards, they talk about a need to “cut discretionary spending wherever possible” which is pretty key right now given the volatility we’re seeing in the equities market. (Volatility often causes a “flight to quality” where investors want to take fewer risks.) Market volatility also causes spending to contract, something that Atomera noted in the earnings call:
With another of our JDA customers we had – they are starting to worry about some cost, some cost concerns, and so that one will probably be delayed a little bit longer.
Atomera Q1 2020 Results – Earnings Call Transcript – Credit: Seeking Alpha
That statement was in response to an analyst question probing joint development agreements (JDAs), in other words, revenues. At the end of the call, President and CEO Scott Bibaud closes with:
Atomera is pleased to be able to report our growing momentum and progress towards unlocking what we believe is our huge potential in 2020. Please continue to look for our news articles and blog posts to keep you up to date on our progress.
Atomera Q1 2020 Results – Earnings Call Transcript – Credit: Seeking Alpha
Now this is where we differ from some retail investors who think that company blog posts or media articles are a way to measure progress. We haven’t read Atomera’s blog, and have no intention to. We read the SEC filings. That’s where the pertinent information lives that Atomera is required by law to disclose. That’s where current and future investors should be looking for insights. Until we see some meaningful revenues, Atomera will continue to spin tires while selling more shares to cover their expenses.
We don’t want to hear about how many more JDAs you have signed. If your stated goal is to “assist customers through a licensing business model,” we want to hear about customers paying you licensing fees in meaningful amounts. We’ve been waiting four years now.
Conclusion
We research and write about technology stocks on a regular basis, and there’s no shortage of compelling stories. As with any company, just because you have a great idea it doesn’t mean you’ll succeed. It all comes down to execution. Based on the increased volume and share price, it appears Atomera is being viewed in a positive light by investors, at least for now.
From our perspective, we’ve seen too many companies over the years try to get traction with a product while issuing shares to fund operations and never succeed. Like most tech stock stories right now, we’re sitting this one out and placing our faith in companies like Nvidia that see software – in particular, machine learning – as the most viable way to resurrect Moore’s Law.
Share
“We haven’t read Atomera’s blog, and have no intention to. We read the SEC filings. That’s where the pertinent information lives that Atomera is required by law to disclose.” With this rule of thumb in investing you would have missed being an early investor in Amgen, Genentech, and every other company that has a revolutionary product.
But, fear not. When revenues pick up in 2022, you can get on board. Of course, revenues will follow the JDAs that get signed between now and then. JDAs that will result in large future revenues. A fact that won’t hit the earnings statements but will continue to drive this share price higher.
Real analysis involves more than reading SEC filings, which are but a piece of the puzzle. Find out who the customers are, speak with them and learn if the product is really going to help postpone Moore’s Law or not before you bother writing another piece like this.
Thank you for the comment.
The potential of the technology is pretty clear. The question is, can it produce meaningful revenues for the company? Said the company in their 2016 S-1 filing:
Assuming the timely and successful completion of process and the subsequent product qualification by customers and partners, we expect revenue based on sales of MST® enabled products in 2017.
They just didn’t say how much revenue!
We first looked at Atomera four years ago when they had their IPO, and they have yet to realize meaningful revenues. You are correct that the opportunity to invest lies prior to revenues. There is likely some discount being factored in given the present uncertainties. Given the risk-reward profile we’re seeing here, we don’t find this to be an attractive thesis. Of course, the company would disagree with that. That’s fine. We always need to see both sides of the story and never fall in love with a stock. Atomera could get acquired tomorrow at a 400% premium on today’s share price and we could miss out on a windfall. We’re fine with that.
As for reading their blog, we appreciate the communication from management, technical as some of it may be. We have limited resources and we’re interested in quickly vetting a thesis and moving on otherwise we’d never get anything done. If you’re in a position to hear feedback from customers, that’s great. They’re probably not willing going to share that if we come around asking.
You seem to be a subject matter expert of sorts. Would be interested to hear if you have been able to attribute the recent rapid rise in share price to a single event? That wasn’t apparent from where we’re sitting.
Thank you for taking the time to comment!