Screen time.
Parents worry about it. Children and Teens joyously embrace it. Adults resolve to reduce their own screen time. But, at the end of the day, are too tired to do much else than stare at a…
Screen.
The average American spends 7 hours and 4 min looking at a screen each day. The Global Average could, in fact, be slightly higher. Between work screens and leisure time screens and seemingly ever-diminishing sleep cycles, this trend shows few signs of slowing down.
So who is benefiting from all this screen time?
Universal Display Corp (OLED) is one such company. While Apple, Samsung, HiSense, LG, Vizio and others sell the screens/devices, Universal Display Co develops and commercializes OLED technologies/materials for displays and solid-state lighting applications. Founded in 1994, OLED is a pioneer in the field, whose research and development of OLED tech has resulted in an extensive IP Portfolio of over 6000 patents worldwide.
OLED’s lead product is its Phosphorescent OLED (PHOLED) technology which is a marvel of energy efficiency, boasting an increased lifespan at a lower cost as well. Phosphorescent OLED is up to 4x more efficient than Flourescent OLED making it a very attractive option for Smartphones, portable devices and displays/lighting which require low-power consumption.
Oh yeah, OLED screens are absolutely stunning too. There’s a reason that talk of an OLED iPad makes the news.
As we highlighted in our SMCI/QCOM-deep dives over the past weekend, we expect an AI-enhanced smartphone upgrade-cycle to begin in earnest over the next 18 months with accelerated adoption in 2025. Apple, Samsung and Qualcomm certainly stand to benefit handsomely, and so too will Universal Display Corp. As consumers upgrade their older phones to harness the power of on-the-fly, smartphone AI, that’s a lot of new screens included as well.
Another upcoming catalyst for OLED is the commercialization of the company’s all-phosphorescent RGB stack in 2024. In its current form – Red and Green PHOLED w fluorescent Blue – the performance gains demonstrate an impressive 64% improvement in power consumption versus 2015 smartphones. The addition of Blue to the PHOLED stack is projected to show an additional 24% improvement over 2023 models.
In a recent note, Needham (Buy, $198PT) remarked that Universal Display Corp was amongst the most sought-after companies by investors at its 26th Annual Needham Growth Conference, held on Jan 17-18. Though Needham does not expect a meaningful ramp up in blue materials until 2025, they noted:
“UDC ultimately expects significant adoption of blue in the market, including from Samsung, the only display customer whose license agreement currently excludes blue.
Management continues to expect that, as blue materials are adopted, the amount of blue emitters consumed by customers will be similar to the ratio UDC has seen with green and red emitters, namely 2 to 1, with a premium price expected for blue given the expected power consumption benefit.”
While we can expect the ramp in Blue emitters to be gradual at first, as we progress through the year into 2025, the premium on price will make it well worth the wait. According to Display Supply Chain Consultants (DSCC) the pricing for PHOLED Blue could be 7x the price of flourescent Blue, with the opportunity for further increases as the lifetime of PHOLED Blue improves.
As the power demands of our various devices increase and consumers are drawn to OLED’s superior picture quality and screen brilliance – queue the OLED iPad again – OLED is being adopted into more and more applications. In 2023, the overall Flat Panel Display (FPD) Industry suffered somewhat from an oversupply environment, which is now in the recovery stages as we begin 2024.
In DSCC’s Quarterly FPD Supply/Demand Report, they write:
“After two consecutive years where FPD demand area decreased in 2022-2023, we expect growth to resume in 2024 and continue through 2027 with a CAGR of 5% to reach 305M m2 in 2027.”
Take a look at the projected growth of the FPD Industry through 2027. See how it stair-steps consistently over the next 4 years? Keep in mind these numbers factor in a technology split between LCD and OLED. But just as we have been emphasizing, DSCC goes on to say:
“[We] expect OLED to gain share across all applications and expect OLED demand area to grow faster than the FPD market as a whole…”
For good measure, if we jump back over to Universal Display Corp’s internal projections for OLED display panel demands over the upcoming years, we see a similar stair-step chart that speaks to the force of the market drivers and underlying demand:
$300. Hear us out.
As the AI-enhanced super-cycle gains momentum in smartphones, wearables, PCs, TVs and more, we have already observed that demand should be increasingly strong over the next 4 years. OLED has always traded at an elevated P/E (see below) and we believe investors will award it with a re-rated forward multiple as Revenue and Earnings accelerate throughout 2025.
With all the catalysts at play, we think current estimates are way too low for OLED in 2025. But that is often the case with companies just before their inflection point. We see a nice dispersion between our expectations for OLED and where the Buy Side currently stands with their models.
We think OLED has the potential to earn $7.50/shr in 2025 versus the current estimates of $6.41. Attach a 35x multiple to $7.50 in earnings and you get the stock to $262.50. If investors re-rate the stock to a 40x multiple, the stock trades at $300.
We are taking a very patient approach here. We are often early on our long term Inflection Point picks, so it’s important to acknowledge that. We therefore plan to work into OLED over coming months, leaving room in case the 50day SMA ($177.60) breaks. Should we head back to 200day SMA, on any market weakness, we would take a full position just above there. This will create a very compelling Risk/Reward for the trade.
Keep in mind we are in a Bull market. If Apple starts talking about future AI features and investors begin to sniff out what we see – a dynamic AI-driven smartphone super-cycle in late 2024-2025 – then we will accordingly take a full position into strength as well.
In respect to risk, our process dictates exiting any long position on a decisive break of the 200day SMA. We therefore plan to use a STOP of 1.5% below 200day SMA in respect to risk.
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Disclosure: We are long OLED, PINS, SMCI inthe accounts we oversee.
Disclaimer: In no shape or manner should the views expressed in this piece be considered investment advice. We reserve the right to change our positioning in these names at a moment’s notice without updating you on any such change in opinion and positioning.
Investors need to consider their investment risk tolerance before investing in the stock market and also before investing in any of the stocks mentioned in this report.
