Arteris, Inc. (AIP) stock intrinsic value fair value estimate & owner earnings analysis

Arteris sells interconnect intellectual property, the "wiring" that moves data between the parts of a chip, to semiconductor designers. Customers license the design and receive engineering support, usually on contracts of two to three years, and pay variable royalties on top. Revenue was $70.6 million in 2025 (up from $57.7 million in 2024), with a 90% gross margin. Annual contract value, the yearly value of fixed-fee contracts, reached $77.0 million at the end of 2025 (2024: $60.7 million), and contracted future revenue was $116.8 million (2024: $88.4 million). Customers in China were 24.5% of 2025 revenue, and one customer was more than 10% of revenue. The problem is what it costs to earn that revenue. Operating expenses were $96.8 million in 2025, so the company lost $33.1 million from operations and $34.7 million overall. Operating cash flow was positive, at $6.7 million, only because customers pay in advance: deferred revenue rose $19.7 million in the year. We remove that timing benefit because it repeats only while contracts keep growing. Stock compensation, $18.4 million in 2025, is treated as a real cost because it dilutes owners; the average diluted share count rose from about 17.6 million in 2020 to 42.3 million in 2025. Capital spending is small ($1.4 million in 2025), and we count the part beyond what growth would need as the cost of staying in business. On that basis, owner earnings per share were negative in every year we can measure: about -$0.23 (2020, before the 2021 public offering), -$1.02 (2021), -$0.83 (2022), -$0.94 (2023), -$0.76 (2024) and -$0.72 (2025). We anchor on the 2021 to 2025 median, -$0.83 a share, because the 2021 offering changed the company's scale and stock compensation. The most recent year improved slightly, about 5%, and we assume no better than that. The first half of 2026 does not show a change of course: revenue rose to $47.1 million from $33.0 million, but stock compensation rose to $11.9 million from $8.8 million and the net loss widened to $22.0 million from $17.3 million. What we credit: the company holds about $59.5 million of cash and investments ($54.6 million of cash and short-term investments plus $4.9 million of long-term investments at the end of 2025), which is roughly $1.25 a share on the 47.3 million diluted shares of mid-2026. That is the only value we can name and evidence today. What we leave out: the contracted revenue and 22% revenue growth are real, but costs have grown almost as fast (operating expenses up 16% in 2025, and the loss from operations widened from $31.6 million to $33.1 million). A move to positive owner earnings would require margins to widen, which the record has not yet shown, so the operating business is valued at zero rather than at a guessed profit. Bear case, $0 a share: contracts renew but do not grow, spending keeps rising, and advance billings stop growing. Without the working-capital inflows, 2025 operating cash flow would have been about -$11 million before stock compensation, so the cash pile is used up over several years and shareholders are left with little. Interest expense was only $0.2 million in 2025, so we do not see the company owing more than it is worth. Base case, $1.25 a share: the operating business loses money for owners after stock compensation and we place no value on it, so the value is the cash and investments spread over the growing share count. Bull case, $1.34 a share: the same cash spread over the 44.3 million shares outstanding at the end of 2025, as if dilution stopped. We do not credit rising margins or new products, because neither is yet demonstrated. What could prove this too low: the company holds costs flat while contracted revenue of $77.0 million a year is recognized, and owner earnings turn positive. Even with revenue at $83.6 million (contract value plus royalties) and flat 2025 spending, our arithmetic still gives a loss, so it would take actual cost discipline. What could prove it too high: the company also carries an equity-method investment in Transchip that lost $2.8 million in 2025 and depends on that company raising more capital, and sales are exposed to the cyclical semiconductor industry. The margin-of-safety price is about $0.60 a share, roughly half the cash backing, because the operating business has no proven earnings and the outcome depends on management controlling costs.