Move over Nvidia Corp The new tech darling is… BlackBerry? There is a new BlackBerry emerging. And investors are excited about it
Move over, Nvidia Corp. The new tech darling is … BlackBerry Ltd. BB-T?
Shares in the Canadian cybersecurity company – formerly known as Research In Motion Ltd., whose wireless communication devices were ubiquitous before the arrival of the iPhone – have been on a tear for more than two months.
The stock has rallied 79 per cent in New York (it also trades in Toronto) since the end of October, outperforming Nvidia NVDA-Q by nearly 74 percentage points. BlackBerry’s gains appear to have little in common with previous rallies over the past couple of years, which were largely driven by speculative interest in a handful of meme stocks.
Okay, the comparisons between the two companies should end there. BlackBerry is a pipsqueak next to the U.S. chip maker, which has been associated with the recent upsurge in investor interest in artificial intelligence. And let’s make it perfectly clear that Nvidia has been hitting record highs while BlackBerry is still a foothill of its former glory. It is currently valued at just $3.5-billion based on the combined worth of its outstanding shares, a far cry from once being Canada’s most valuable company.
Nonetheless, the Waterloo, Ont.-based company is attracting renewed interest among investors as a newly streamlined play on cybersecurity and vehicle software. Both business lines have been around for some time within BlackBerry. It’s the streamlining that’s important here.
In December, the company announced a deal to sell its floundering Cylance cybersecurity unit to Arctic Wolf Networks Inc. BlackBerry will get net cash of US$120-million from the deal, plus millions of shares of unknown value in the buyer. Though that compares dismally with the US$1.4-billion that BlackBerry paid for Cylance in 2018, it was far more than many analysts had expected from the sale, given that the division was a drag on BlackBerry’s earnings and hemorrhaging customers.
Without it, the company’s secure communications unit – which provides security across mobile devices and boasts governments as important customers – has a far more attractive growth profile.
The company expects the division’s revenue growth will rise 1 per cent in fiscal 2026 and then 7 per cent in fiscal 2027. That’s what investors like.
Just as important, BlackBerry expects margins will expand to 27 per cent in fiscal 2027, compared with an estimated 17 per cent in 2025. EBITDA – earnings before interest, taxes, depreciation and amortization – will accelerate to US$79-million in fiscal 2027, up from an estimated US$45-million in 2025.
For a division that showed little upside in recent years, this is good news.
BlackBerry’s other division, QNX, which makes software such as advanced driver-assistance systems now used in 255 million vehicles worldwide, looks even better. Revenue growth should pick up to 12 per cent next year and then 15 per cent in fiscal 2027, with EBITDA expanding by nearly 60 per cent over this two-year period. Growth should be even higher if today’s relatively weak auto sales pick up.
The company’s fiscal third-quarter results, released in mid-December, provided a glimpse of this upbeat future.
Revenue surpassed analysts’ estimates. Ignore losses from the soon-to-be jettisoned Cylance unit and BlackBerry generated a US$12-million profit over the three-month period ended Nov. 30.
John Giamatteo, the company’s chief executive officer, told analysts during a conference call that the quarterly results reflected “a significant inflection point.”
Investors are believers. They may see a stock that has at last found some momentum – and executive leadership that has focused on areas of growth.
The question now is how far the stock can rise.
Todd Coupland, an analyst at CIBC Capital Markets, is among the most enthusiastic voices calling for a sustained rebound. This week, he made the case for the stock rising to US$6 – about $8.40 for the Toronto-listed shares – within the next 12 to 18 months, which implies another 48-per-cent gain.
He believes growth has stabilized, the path to profits has become clearer and the stock’s valuation looks compelling relative to peers and based on prices paid for recent acquisitions within the sector. What’s more, the company’s financial guidance is conservative, he says.
“In our view, these factors outweigh the risks such as slower growth from global vehicle production and slower cyber enterprise spending,” Mr. Coupland said in a note.
Perhaps the best thing going for the stock is that it is only starting to emerge from a long slump, during which it fell off the radar screens of many investors. Expectations are rising, but they’re still pretty low. At least this time, it probably won’t take meme stock fanboys to drive some life into the stock.