An under-the-radar AI stock just delivered the best quarter of the chip sector
Qnity Electronics delivered “the single best quarter that I have seen from the semiconductors” on Thursday, Jim Cramer said. Given the beats across the board and a sunnier outlook, it’s a take that’s hard to argue with. Revenue in the first quarter increased 17.6% from a year ago to $1.32 billion, outpacing the $1.27 billion expected by LSEG. Earnings per share (EPS) jumped 33.3% year over year to $1.08, also outpacing the consensus estimate of 92 cents, according to LSEG. Q 1Y mountain Qnity 1-year return Shares popped on the release but drifted lower with the overall market. By late afternoon, however, they were looking to close at a new all-time high. Bottom line This was Qnity’s second quarter since spinning off from DuPont in November, and it was another remarkable one. Along with beating on sales and earnings in each of its two operating segments, the company’s operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margins also came in better than forecast. It was another win for this red-hot beneficiary of the artificial intelligence boom. The management team also raised its full-year guidance for the top and bottom lines above the quarterly results. That’s notable because it means management isn’t simply passing through the first-quarter strength, but expects results in each future quarter to beat estimates. In other words, the stock is cheaper than previously thought on an earnings basis, and estimates are set to move higher. What’s driving all the success for this somewhat under-the-radar player? Qnity plays an essential role in the data center buildout by providing chemicals and other specialized materials used to manufacture semiconductors and to package them in increasingly complex ways. The company’s two operating segments work hand in glove to generate growth. The Semiconductor Technologies segment helps its customers build computer chips and electronic devices, while Interconnect Solutions addresses performance challenges, including power efficiency, heat management, signal integrity, and long-term reliability. Key customers include leading chip manufacturers TSMC , Samsung, and SK Hynix. Why we own it Qnity is a key supplier of chemicals and materials used in semiconductor and electronics manufacturing. The more chips and electronic devices are built, the greater the demand for Qnity’s products. Competitors : Entegris , MKS , Element Solutions Most recent buy : Nov. 19, 2025 Initiated : The Club received Qnity shares in the DuPont spinoff in late 2025. This one-two punch makes Qnity a fantastic way to play the AI buildout — a true “picks and shovel” name that is a critical supplier to companies that make the chips designed by Nvidia , Broadcom , and others. As a result, it really doesn’t matter where the demand is in the data center. Whether it’s GPUs (graphics processing units), CPUs (central processing units), or memory, companies need the advanced materials and solutions Qnity provides. On the conference call with investors, CEO Jon Kemp pointed out that while chips have improved over the years by getting smaller, chipmakers are running out of room to shrink them further. The industry is now starting to stack chips on top of each other to make them more powerful and efficient. This trend will only make Qnity’s materials more in demand, Kemp said. In the consumer electronics business, we were prepared to see some weakness, given the rapid rise in memory prices, which is feeding into higher selling prices for things like PCs and smartphones. But we were pleased to see little headwind in the quarter. This is likely to become an increasingly immaterial factor as the company’s sales mix shifts . On call, Kemp said the business proved resilient for two reasons: the company’s exposure is to the more premium end of the market, where consumers tend to be a bit less price sensitive; and second, the growing demand for AI infrastructure more than offset any realized weakness in the quarter. “As customers allocate capacity to the highest value applications, our portfolio mix is increasingly moving beyond consumer electronics to attractive high-value applications like data centers, autonomous driving, and aerospace and defense,” he added. Last quarter, executives detailed a multiyear transformation plan intended to simplify operations, enhance productivity, and cut costs. The plan is expected to result in a $100 million boost to its EBITDA run rate by the end of 2028. Management said the plan remained on track. Given the remarkable quarter, Qnity is in a great position to keep grabbing market share, not only as chips get smaller but also as the industry shifts more toward stacking. We are therefore increasing our price target to $180 from $140. We maintain our hold-equivalent 2 rating as the stock has now doubled year to date, but we will look for an opportunity to upgrade on a pullback. Quarterly results This was a clean beat, across the board, as Qnity managed to outpace expectations for sales, EBITDA, and EBITDA profit margins in both of its two key operating segments — Semiconductor Technologies and Interconnect Solutions The Semiconductor Technologies segment is home to products used directly in the complex process of making semiconductors. It also covers the materials used in certain TV screens and other electronic displays. The products sold by the Interconnect Solutions segment, on the other hand, are more closely aligned with advanced packaging and thermal management. The complexity of AI chips is driving demand for both processes. And, as the name suggests, this segment is also involved in manufacturing the “interconnect” products that connect the various parts of the data center. AI is also boosting demand there. Guidance Management raised its targets for the full year 2026 across the board: Sales of $5.225 to $5.375 billion, up from the prior $4.97-$5.17 billion range, and ahead of the $5.12 billion consensus estimate at the midpoint, according to LSEG, including the low end. Adjusted operating EBITDA of $1.535 to $1.625 billion, up from the prior range of $1.465 billion to $1.575 billion, and above the $1.532 billion consensus estimate, according to FactSet. Adjusted earnings of $3.80 to $4.14 per share, up from the prior $3.55 to $3.95 per share range, ahead of the $3.71 billion consensus estimate, according to LSEG. Adjusted free cash flow of $500 to $600 million, up from the $450 million to $550 million range previously forecast, and above the $413 million consensus estimate, according to FactSet. 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