Apple supplier Cirrus Logic(NASDAQ: CRUS) has witnessed a big jump in its stock price in the past month, jumping 23% as of this writing after it emerged that its largest customer is getting a reprieve from the tariff turmoil.
Cirrus Logic supplies audio codecs, power amplifiers, camera controllers, haptics modules, and other types of chips that are used in smartphones and personal computers (PCs). Apple is its largest customer, accounting for 89% of the top line in the recently concluded fiscal 2025, which means that Cirrus' fortunes are closely tied to the iPhone maker.
So, the Trump administration's decision to exempt imports of smartphones, computers, and chips from tariffs came as a welcome relief for Cirrus Logic investors. Tariffs could have dented Apple's sales since a large chunk of iPhones are produced in China, and the tech giant would have been forced to increase prices substantially to absorb the tariff impact.
And now, the agreement between the U.S. and China to substantially slash tariffs for 90 days further suggests that the trade war between the two economic giants is cooling off. It may be a good idea to buy shares of Cirrus Logic in such a scenario.
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Cirrus Logic's growth is gaining momentum thanks to AI
Cirrus Logic's revenue in the recently concluded fiscal 2025 (which ended on March 29) increased by just 6% year over year. Its adjusted earnings, however, increased at a much faster pace of 14% from the preceding year to $7.54 per share.
Though Cirrus' growth may not seem all that great, it is worth noting that the chipmaker performed well during a difficult year for its largest customer. Apple's iPhone shipments in 2024 fell slightly from the previous year. However, Cirrus was able to overcome this challenge as it won more business from Apple.
The chipmaker is now supplying power management modules to Apple as well, apart from audio codecs, which should have allowed it to mitigate the slight drop in iPhone volumes. But now, the arrival of Apple's artificial intelligence (AI)-enabled iPhones is boosting sales. The tech giant's smartphone shipments shot up an impressive 10% year over year in Q1 this year, which was way ahead of the 1.5% growth of the overall smartphone market.
At the same time, the company is also witnessing growth in sales of MacBooks and iPads thanks to the rollout of Apple Intelligence in these devices. The good part is that the sales of generative AI-capable smartphones and PCs are expected to increase at a compound annual growth rate of almost 35% through 2029.
So, it won't be surprising to see an improvement in sales of Apple's iPhones, MacBooks, and iPads in the future, and that bodes well for Cirrus Logic considering its reliance on the tech giant. As it turns out, Cirrus' sales in the fourth quarter of fiscal 2025 (which coincided with the first quarter of calendar 2025) shot up 14% from the year-ago period, exceeding the growth in the company's revenue for the entire fiscal year. Even better, its earnings grew at a much stronger pace of 34%.
The discussion above suggests that this trend is likely to continue as the adoption of AI-capable consumer devices increases, which is why it could end up outpacing analysts' expectations.
The valuation makes the stock an attractive buy right now
Cirrus Logic is currently trading at less than 18 times trailing earnings, which makes it an attractive bet considering the healthy earnings growth it delivered last quarter. Not surprisingly, analysts have increased their earnings growth expectations following its latest report.
Assuming Cirrus achieves the earnings that analysts are expecting from it next fiscal year and trades at 29 times earnings at that time, in line with the tech-laden Nasdaq-100 index's earnings multiple, its stock price could jump to $221. That would be just over double the company's current stock price, which is why investors should consider buying this growth stock before it zooms higher.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends Cirrus Logic. The Motley Fool has a disclosure policy.
