1 Small-Cap Chip Stock Just Tanked Nearly 30% -- Time to Buy?

Core Viewpoint - SkyWater Technologies, a small U.S.-based chip manufacturing start-up, experienced significant stock volatility following its Q1 2024 earnings update, with shares initially dropping over 30% but later rebounding slightly, still down nearly 30% pre-earnings and nearly 20% year-to-date in 2024 [1][2]. Group 1: Business Model and Revenue - SkyWater operates a unique business model where 77% of its Q1 2024 revenue came from its Advanced Technology Service (ATS), a joint development initiative with customers to address specific semiconductor manufacturing needs [2][3]. - ATS revenue increased by 28% year-over-year in Q1, contributing to a total revenue of $79.6 million, which represents a 20% increase [4]. - The ATS program is not designed to be profitable; it serves as a feeder for the Wafer Services segment, which involves manufacturing and selling researched wafer technology to customers [5]. Group 2: Financial Performance and Challenges - Wafer Services revenue was reported at $10 million in Q1, slightly exceeding expectations but down 44% year-over-year [5]. - An additional $8 million ATS charge related to a customer project impacted margins but is expected to aid in achieving profitability for the remainder of 2024 [7]. - The semiconductor manufacturing industry is currently experiencing a cyclical slump, and 2024 is viewed as a transition year for SkyWater as it ramps up ATS development before shifting to more Wafer Services in 2025 and beyond [6]. Group 3: Market Sentiment and Investment Outlook - The volatility in SkyWater's stock price reflects typical small-cap stock behavior, and caution is advised for potential investors [8]. - The company is still in a start-up phase, and it will take time to transition ATS customers to Wafer Services, which is necessary for a more substantial impact on profitability [9]. - While there is long-term potential for growth, current market conditions suggest that there are more stable investment opportunities in the semiconductor sector for new investments [10].