Issue #59

Why Xperi and Cohu are the backbone of the 2026 AI economy.

The artificial intelligence boom isn’t being won by the loudest models or the flashiest demos — it’s being decided quietly, inside the cockpits of our cars and the cleanrooms of semiconductor fabs where real innovation runs 24/7. As we enter 2026, the industry has moved past the "experimentation" phase of AI and into the era of specialized infrastructure. To win now, companies must dominate two critical layers:

The content-discovery software that makes AI-driven entertainment intuitive for the consumer, and the back-end testing hardware that ensures the world’s most advanced AI memory actually works.

This is where the AI conversation shifts from digital assistants to the physical and digital architecture of our daily lives — and where the most durable value is being created.

👉 One company is becoming the universal "brain" for the smart screens in our homes and the infotainment systems in our cars, recently landing a massive global partnership with Mercedes-Benz.

👉 The other is the "gatekeeper" for the High Bandwidth Memory (HBM4) revolution, providing the precision testing systems that the industry’s memory giants physically cannot scale without.

👉 Both are profitable, trading at compelling valuations, and are seeing a surge in analyst "Buy" ratings as they enter their most significant growth cycle yet.

In this edition, we break down the software ecosystem and the hardware precision powering the 2026 AI economy — and why these two stocks sit at the foundation of the next decade of intelligent growth.

Xperi Inc. (NASDAQ: XPER)

Xperi Inc. (NASDAQ: XPER) is a leading consumer and entertainment technology company that specializes in licensing intellectual property (IP) and providing software solutions for the media, automotive, and semiconductor industries. Through its flagship brands—TiVo, DTS, and HD Radio—Xperi enables seamless, high-quality audio and video experiences across billions of devices, including smart TVs, connected cars, and mobile platforms. By pivoting from a traditional licensing model toward a recurring, platform-based revenue strategy, Xperi is positioning itself as a critical player in the evolving digital entertainment ecosystem.

Business Model and Revenue Streams 📦

Xperi’s business model is centered on inventing and licensing advanced technologies that enhance how people connect with content. The company has shifted its focus from one-time licensing fees toward higher-margin, recurring revenue streams driven by its media and automotive platforms. Its operations are divided into four primary segments:

• Media Platform (TiVo OS & TiVo One): This is the company’s primary growth engine. It operates on an independent media platform model, partnering with original equipment manufacturers (OEMs) to integrate TiVo OS into smart TVs. Revenue is generated through advertising on the TiVo One platform and a share of recurring subscription fees, moving toward an Average Revenue Per User (ARPU) model.
• Connected Car (DTS AutoStage & HD Radio): Xperi provides in-car entertainment and infotainment solutions. While HD Radio remains a core licensing staple, the growth focus is on DTS AutoStage, a global hybrid radio platform. Revenue comes from licensing fees per vehicle and emerging data-monetization opportunities within the dashboard.
• Pay TV (IPTV & Search/Discovery): This segment serves service providers by offering IPTV solutions and "classic" guide technologies. While traditional cable guides are a legacy business, the shift toward IPTV (Video-over-Broadband) provides a growing, subscription-based revenue stream.
• Consumer Electronics (CE): Xperi licenses its DTS audio and IMAX Enhanced imaging technologies to manufacturers of gaming consoles, smartphones, and home theater systems.

Xperi’s performance is closely tied to macroeconomic trends in consumer electronics demand and automotive production volumes. While high interest rates and inflation can dampen consumer spending on new gadgets, Xperi’s pivot to a "platform-first" strategy helps mitigate these risks by focusing on monetization of the existing installed base rather than just new device sales. Furthermore, the company benefits from global semiconductor policies—such as the U.S. CHIPS Act—which stabilize the supply chains of its hardware partners, ensuring a steady flow of Xperi-enabled devices into the market.

Recent Performance and Corporate Developments 📈

Xperi reported strong results for the third quarter of 2025, signaling that its strategic transition is gaining significant momentum.

Q3 2025 Financial Highlights: 💰

• Revenue: Total revenue reached $112 million, surpassing analyst estimates of $108.5 million. While this was a year-over-year decline due to a large non-recurring deal in 2024, the underlying growth in its core platforms was robust.
• Profitability: The company posted a non-GAAP EPS of $0.28, significantly beating the forecast of $0.20.
• Platform Growth: The TiVo One platform reached 4.8 million monthly active users (MAUs), a 30% sequential increase. Simultaneously, the Connected Car footprint expanded to over 13 million vehicles globally.
• Cash Flow: Xperi achieved its second consecutive quarter of positive free cash flow, reaching $2 million, and ended the quarter with $97 million in cash.

Strategic Initiatives and Mergers: 🤝

In late 2025, Xperi took decisive action to streamline its business. The company successfully completed the divestiture of its Perceive AI business, allowing it to focus entirely on media and automotive platforms. Additionally, Xperi initiated a restructuring plan in November 2025, including a 15% workforce reduction. This move is expected to generate $30 million to $35 million in annualized savings, significantly boosting its margin profile for 2026. At CES 2026, the company announced its 10th TiVo OS partner, marking its entry into new European and Asian markets.

Profitability and Fair Value 🎯

Xperi is currently in the "sweet spot" of its turnaround, moving from a period of heavy investment into a phase of sustained profitability. The company has maintained its full-year 2025 adjusted EBITDA margin guidance of 15% to 17%, with expectations for margin expansion in 2026 as the high-margin Media Platform segment scales.

In terms of valuation, Xperi appears undervalued compared to its peers in the software and licensing space. With a market capitalization of approximately $284 million and annual revenue guidance of $440–$460 million, the stock trades at a Price-to-Sales (P/S) ratio of roughly 0.6x—significantly lower than the industry average. As the company continues to hit its ARPU target of $10 and scales its recurring revenue, investors may see a significant re-rating of the stock's value.

Analyst Estimates and Ratings 📊

• Consensus Rating: The general consensus among analysts is a "Strong Buy." Over the last 30 days, the stock has seen a wave of positive sentiment following its earnings beat and restructuring news.
• Price Target: The average 12-month price target is approximately $11.00, representing a potential upside of nearly 80% from its current trading price of approximately $6.11.
• Recent Upgrades: Zacks Investment Research recently upgraded Xperi to a "Strong Buy" in late December 2025, citing improved earnings estimates and operational efficiency.

Investor-Focused Takeaway: Is XPER Right for Your Portfolio?

Xperi represents a high-potential "turnaround play" in the semiconductor and entertainment tech space. Its move away from "lumpy" licensing deals toward a predictable, software-driven recurring revenue model makes it a much more resilient investment for 2026.

What to Watch in the Near Term: 📈

• TiVo OS Adoption: Track the growth of Monthly Active Users; hitting the next milestone of 7–10 million users will be a major catalyst for the stock.
• Restructuring Progress: Watch for the realization of the $30M+ cost savings in the first half of 2026, which should directly impact net income.
• Automotive Partnerships: New deals with major OEMs for DTS AutoStage could unlock additional long-term data revenue.

Recommendation:

Xperi (XPER) is a compelling pick for investors looking for exposure to the "Smart Screen" and "Connected Car" revolutions at a discount. With a strong cash position, rising analyst support, and a clear path to increased margins, it is a top semiconductor-related stock to watch this year.

Cohu Inc. (NASDAQ: COHU)

Cohu Inc. (NASDAQ: COHU) is a global leader in the semiconductor equipment space, specializing in the "back-end" of the manufacturing process. While companies like ASML focus on carving circuits onto wafers, Cohu provides the critical test, automation, and inspection systems that ensure those chips actually work before they are shipped to customers. As we move into 2026, Cohu has transformed itself from a purely cyclical hardware seller into a diversified provider of high-tech manufacturing solutions.

Business Model and Revenue Streams 📦

Cohu’s business model revolves around optimizing the yield and productivity of semiconductor manufacturers. Their value proposition is simple but vital: the more complex a chip is (like an AI processor), the harder it is to test, and the more likely it is to have defects. Cohu’s machines solve this. Their revenue is generated through two primary channels:

• Semiconductor Test & Inspection Systems: This includes high-performance "handlers" (like the Eclipse series) that physically move and thermally manage chips during testing, and advanced optical inspection tools (like the Neon series) used for High Bandwidth Memory (HBM) and AI accelerators.
• Recurring Revenue (The "Bedrock"): One of Cohu's most impressive feats has been growing its recurring revenue to roughly 55% to 60% of total sales. This includes consumables (test contactors and probe heads), spare parts, software subscriptions, and service contracts. This high percentage of recurring income provides a massive "cushion" during periods when chipmakers pause their capital spending on new machines.

Macroeconomic Impact:

Cohu is currently navigating a "tale of two markets." On one hand, geopolitical trade restrictions—particularly around advanced equipment exports to China—have created hurdles. On the other hand, the global push for "technology sovereignty" and the construction of new "fabs" (factories) in the U.S. and Europe act as a long-term tailwind. As these new factories come online in 2026, they will need Cohu’s equipment to begin production.

Recent Performance and Corporate Developments 📈

Cohu’s recent performance reflects a company that has successfully weathered a semiconductor "down-cycle" and is now ramping up for the AI-driven recovery.

Recent Financial Highlights (Q3/Q4 2025): 💰

• Revenue Resilience: In Q3 2025, Cohu reported revenue of $126.2 million, a 32.5% increase year-over-year. Management guided Q4 2025 revenue at approximately $122 million, maintaining stability despite typical seasonal dips.
• AI Momentum: The standout star is the Neon HBM inspection system. Cohu shipped its first systems configured for HBM4 (the next generation of AI memory) in late 2025, positioning the company to capture the massive AI accelerator ramp-up expected throughout 2026.
• Operational Efficiency: In late 2025, Cohu implemented a restructuring plan to consolidate its manufacturing footprint into lower-cost regions like Malaysia and the Philippines. This is expected to save the company roughly $8 million to $10 million annually starting in 2026.

Strategic Mergers and Capital Moves: 🤝

In January 2025, Cohu completed the acquisition of Tignis, a specialist in AI-driven process control software. This allows Cohu to integrate deep-learning analytics directly into its hardware, helping customers catch defects faster. Additionally, in late 2025, Cohu raised $287.5 million via a convertible note offering. This "war chest" is strategically intended for M&A and R&D to maintain its lead in the AI testing space.

Profitability and Fair Value 🎯

Cohu is currently on the verge of a significant earnings breakout. While the company posted small GAAP losses in 2025 due to restructuring costs and one-time charges, it has maintained a healthy non-GAAP gross margin of 44%.

As we enter 2026, the company is forecast to turn a significant profit. Analysts expect EPS (Earnings Per Share) to flip from negative to positive $0.62+ as the AI-related orders begin to dominate the mix.

Is the price fair? Currently, Cohu trades at a Price-to-Book (P/B) ratio of roughly 1.2x, which is remarkably low for a semiconductor equipment company. This suggests the market is valuing Cohu close to the actual value of its assets, giving investors a "margin of safety" for a company that is actually a high-growth AI enabler.

Analyst Estimates and Ratings 📊

• Consensus Rating: Cohu currently holds a "Strong Buy" consensus. In the last 30 days, it has been one of the most highly-rated small-cap semiconductor stocks.
• Price Target: Wall Street analysts have a median 12-month price target of $30.00, with high-end estimates reaching $32.00. Given the current price of around $26.80, this implies a steady double-digit upside.
• Notable Support: Major firms like Needham and TD Cowen reiterated "Buy" ratings in January 2026, specifically citing the company's "Neon" platform's role in the HBM4 memory cycle.

Investor-Focused Takeaway: Is COHU Right for Your Portfolio?

Cohu is a "pick and shovel" play for the AI era. You don't have to guess which AI chipmaker will win; as long as the world needs more HBM memory and advanced processors, they will need Cohu to test them.

What to Watch in the Near Term: 📈

• HBM4 Orders: Keep an eye on announcements regarding "Neon" system shipments; this is the highest-margin part of their business.
• Automotive Recovery: While AI is the growth driver, a recovery in the automotive sector (which uses Cohu's "Eclipse" handlers) could provide an extra boost to the stock in mid-2026.
• Margin Expansion: Watch the Q1 2026 earnings to see if the restructuring savings are hitting the bottom line as promised.

Recommendation:

Cohu (COHU) is a solid addition for investors who want AI exposure without the extreme volatility of "fabless" chip designers. Its massive recurring revenue base and its "Strong Buy" status from analysts make it a standout value play in the 2026 semiconductor landscape.

Final Take: The Software Ecosystem and the Hardware Precision Powering AI

The AI revolution isn’t just about models and headlines — it’s about execution at scale. And that requires two things:

Software that turns content and data into seamless consumer experiences, and hardware that can test and verify the world’s most complex processors at lightning speed.

That’s where Xperi (XPER) and Cohu (COHU) stand apart.

📺 Xperi (XPER) — The Independent OS for the Connected Life

✔ Deeply embedded in the automotive and smart TV sectors with 4.8M+ active TiVo users.

✔ Strategic pivot to high-margin, recurring advertising and data revenue.

✔ Positive free cash flow and aggressive cost-cutting expected to drive significant 2026 earnings.

➤ Best for: Investors looking for a high-margin, software-heavy play on the expansion of AI-driven entertainment in homes and cars.

⚙️ Cohu (COHU) — The Gatekeeper for AI Memory & Advanced Computing

✔ Critical provider for HBM4 (High Bandwidth Memory), the fuel for modern AI.

✔ Massive recurring base with ~60% of revenue coming from high-margin consumables and services.

✔ Strong Buy consensus with analysts targeting significant upside as the memory cycle peaks in 2026.

➤ Best for: Investors seeking "pick and shovel" exposure to the semiconductor manufacturing ramp-up without the risk of a single-chip designer.

Investor Insight

🧩 Want an entertainment software powerhouse with expanding margins and recurring cash flow? → XPER

⚙️ Want essential AI hardware infrastructure that is mission-critical for the global chip supply? → COHU

Bottom Line:

Artificial intelligence doesn’t scale on hype — it scales on user engagement and manufacturing yield.

Xperi owns the interface where AI meets the consumer, while Cohu provides the precision testing that makes the AI hardware revolution possible. As the semiconductor cycle hits its stride in 2026, XPER and COHU are no longer "optional" watch-list names — they are foundational pieces for a growth-oriented portfolio.

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Happy Trading
​— Team Premium Stock Alerts