Jefferies has identified a lesser known and potentially undervalued Taiwanese company that is poised to benefit from the growing artificial intelligence sector. The investment bank said Inside Software, listed on the Taipei Stock Exchange, is well positioned to capitalize on growing demand for AI-enabled personal computers and servers. Investors can typically trade Taiwan-listed shares through international brokers such as Interactive Brokers. Jefferies began researching Inside on July 9 in a research note titled “Firmware Leaders and Undiscovered AI Companies,” with a “buy” rating and a price target that suggests a 42% upside potential from current levels. However, FactSet data shows the stock has already risen more than 30% since the rating change and now has room for 17% upside. The stock is up 101% in 2024 and has risen more than 1,500% over the past five years, according to FactSet data. Founded in 1998, Insyde has carved out a place in the firmware industry, with over 50% market share in the personal computer space, Jefferies suggests. Firmware is software that is embedded into hardware, allowing higher-level software, such as operating systems like Microsoft Windows and Linux, to run on hardware components. Insyde’s success stems from its early adoption of Unified Extensible Firmware Interface (UEFI) technology, which has largely replaced the traditional Basic Input/Output System (BIOS) system. Jefferies says the company’s “close partnerships with top chip designers,” such as Nvidia, Arm, Qualcomm, Intel, and Taiwan-based ASPEED, as well as well-known OEMs like Dell and HP, also contribute to the company’s success. “With AI PCs/servers on the rise around the world, Insyde is well-positioned to capture the big AI tailwind, driving 20% growth.” [compounded annual sales growth estimate until 2030]”Despite Insyde’s long history in the technology sector and numerous partnerships, the stock is likely still undiscovered due to limited sell-side coverage” for the company’s shares, Jefferies analysts led by Matt Mah added in a client note on July 9. The investment bank expects the PC BIOS sector as a whole to grow at an annualized rate of 14% from 2023 to 2030. The bank’s analysts also believe Insyde’s royalty-based business model is another factor that makes it attractive. The company charges a fee for each device that uses its firmware, generating significant economies of scale as customer shipments grow. This model has allowed Insyde to maintain gross margins above 70% and steadily increase net profit margins as revenue over the past decade shows. —CNBC’s Michael Bloom contributed to the report.
