Nordic Semiconductor downgraded by JPM on earnings risk, FX pressure

Investing.com -- J.P. Morgan has downgraded Nordic Semiconductor (OL:NOD) to “neutral” from “overweight,” citing a weaker near-term earnings outlook driven by currency headwinds, higher operating costs, and dilution from recent acquisitions, in a note dated Monday.

The move comes despite a slight increase in the December 2026 price target to NOK160 from NOK157, with valuation now based on 2027 EBITDA using a 20x multiple, consistent with the stock’s five-year average.

Forecast revisions were significant. Adjusted EBIT for 2025 was cut by 42% to $17 million, while 2026 and 2027 were lowered by 19% and 11%, respectively. 

Net profit estimates were reduced more sharply: down 64% in 2025, 23% in 2026, and 13% in 2027. 

Adjusted EPS was slashed to $0.03 for 2025 from $0.08. The 2026 forecast dropped to $0.24 from $0.31, and 2027 was lowered to $0.43 from $0.49.

The downgrade reflects three main headwinds. First, about 60% of Nordic’s operating costs are in NOK and EUR, both of which strengthened against the USD in Q2. 

Without any hedging in place, this currency movement is expected to inflate USD-reported opex and reduce margins, despite the company’s intent to keep operating costs flat in 2025.

Second, the integration of Memfault, recently acquired using debt, is expected to pressure earnings. 

Though strategically aligned, Memfault is currently loss-making at the EBIT level. Operating expenses excluding depreciation are forecast to rise 7% in 2025 and 10% in 2026 and 2027, mainly due to M&A and FX impact.

Third, the consumer segment, which accounts for roughly 66% of revenue, remains uncertain. 

While base case assumptions have not changed significantly, the environment presents downside risk. 

This is particularly relevant given the consensus forecast of 21% revenue growth in 2026, in line with Nordic’s mid-term guidance.

Q2 revenue is expected at $155 million, within the company’s $145–165 million guidance, with a gross margin of 50%. 

However, due to increased opex, J.P. Morgan projects Q2 EBIT at $2.6 million, significantly below Bloomberg consensus of $6.7 million. 

Q3 revenue is estimated at $165 million, with gross margin at 50.7%, but currency headwinds are seen further compressing EBIT to $3.5 million, or a 2.1% margin.

Despite revenue upgrades of 1–2% through 2027 driven by M&A, profit metrics have deteriorated. 

EBITDA estimates for 2025–2027 were lowered by 17%, 13%, and 8%, respectively. EBITDA margin for 2025 is now forecast at 9%, down from 10.9%.

Nordic shares have gained 13% since Liberation Day, outperforming the SX8P (+7%), but J.P. Morgan said short-term risks now outweigh upside, prompting the downgrade.