CEVA Inc. (NASDAQ: CEVA) saw its stock plummet 16% on Monday, wiping out Friday's gains, as investors focused on the widening gap between its surging AI licensing revenue and sluggish royalty income. The company reported better-than-expected second-quarter earnings, but the market's reaction highlighted concerns that recent AI design wins have not yet translated into production revenue.
The stock fell $6.07 to $32.60, erasing the 9% advance from the previous session and trimming the company's market capitalization to approximately $911 million. The decline came despite CEVA reporting adjusted earnings of $0.08 per share, beating the $0.07 consensus estimate. Revenue reached $29.0 million, about 3% above the $28.14 million forecast.
However, the breakdown of revenue revealed a stark contrast: licensing and related sales surged 21% to $18.22 million, their strongest level in three years, while royalty revenue edged up just 1% to $10.81 million. This disparity underscores the market's impatience as it awaits the conversion of AI design wins into recurring royalties.
Chief Executive Amir Panush emphasized the significance of a new agreement signed during the quarter with a leading global AI and computing platform company, which selected CEVA's NeuPro-M NPU for its custom AI silicon. "Our agreement signed in the quarter with a leading global AI and computing platform company represents an important expansion of our AI customer base," Panush said. The company was not identified, adding to the uncertainty around the deal's scale.
Management raised its full-year revenue growth outlook to between 13% and 15%, up from the previous 12% guidance. For the third quarter, the company projects revenue between $30.5 million and $34.5 million, implying sequential growth of 5% to 19%, with a midpoint of $32.5 million. Non-GAAP operating income is expected to grow roughly 70%, and non-GAAP net income by about 50%.
Despite the upbeat guidance, the timing of AI royalties remains a key concern. Management indicated that the new AI program might tape out in several quarters, with production potentially starting 18 to 24 months after that. Licensing revenue is expected to lead, but material royalties will only materialize once customers begin shipping products.
Unit shipments painted a mixed picture: total CEVA-powered devices rose 16% to 567 million, driven by strong growth in consumer IoT and Wi-Fi, while industrial IoT volumes fell 21%. Royalty revenue from industrial IoT increased 7%, as automotive AI and infrastructure offerings generated higher revenue per unit, but the overall mix still favored licensing.
CEVA's balance sheet provides a cushion, with cash, equivalents, securities, and deposits totaling around $221 million, representing about 24% of the company's market value. Operating cash flow for the quarter was $5.8 million. Analysts remain cautiously optimistic, with seven Buy ratings and two Hold ratings, and a consensus price target of $50, implying 53% upside from current levels. However, those targets may be revised following Monday's results.
The key test ahead is whether third-quarter revenue hits the midpoint without cost overruns, and whether royalty growth accelerates as AI design wins move into production. If licensing deals can translate into steady recurring income, CEVA's stock could recover, but until then, the market's patience may remain thin.