Semiconductors Are Becoming More Complex. This Spinoff Provides an Easy Way to Profit. -- Barrons.com

By Al Root

There are many ways to play the artificial-intelligence boom. From copper wires carrying electricity to servers, to data centers housing the servers, to the GPU, CPU, and memory chips inside the servers, to frontier AI model companies using the servers to build AI applications that, hopefully, transform the world for the better -- all have been explored, some at length, in investing publications like this one.

These aren't the only ways to play the trend, however. There are other ways for investors to profit, such as DuPont spinoff Qnity Electronics -- and it's a promising one. It benefits from the increasing complexity of semiconductors. Shares could rise 40% as investors better understand its growth potential.

The Wilmington, Del.-based Qnity supplies chip makers with things they need to make chips, including silicon polishing pads, photolithography materials, bonding materials, and heat-management solutions, among many others.

It was spun out of DuPont in October 2025, so the company is just about a year old. Corporations can spin off assets for several reasons, including improved capital allocation. Oftentimes, spinoffs are driven by valuation. Valuation is indeed a factor for Qnity. It competes with the likes of Entegris, which trades at about 33 times earnings expected over the coming 12 months. DuPont, at the time of the Qnity spin, traded at about 16 times. (Now it trades at 17 times.)

Qnity, for its part, trades at about 24 times earnings, despite similar growth expectations as Entegris. That's better than DuPont, but a fairer multiple would be closer to 30 times, which implies a stock price of $160, up more than 30% from Wednesday's close of $121.62.

Fairer in the stock market isn't really a thing, though. Valuation boils down to earnings growth and investors' confidence in it. That confidence may be lacking for now simply because Qnity is still new. "It's among the most underfollowed names in the S&P 500," says Fermium Research analyst Frank Mitsch. The stock has only 10 analysts covering it. The average for an S&P 500 stock is 25 analysts.

Being undercovered is very much part of the spinout process. Wall Street, after all, is a key source of new ideas for investment managers. "Qnity is in a great position to take advantage of the boom in AI and the advanced technologies...and yet, because it's under the radar as of now, we believe that it's suffering from a valuation discount," Mitsch adds.

As investors start to tune in, they should like what they see. Qnity has reported only three quarters as a stand-alone company, but those reports have all topped Wall Street's sales and earnings projections, with each posting at least 33% year-over-year earnings-per-share growth.

Mitsch's target for the stock is $175, corresponding to a gain of more than 40% from recent levels. RBC Capital Markets analyst Arun Viswanathan has a higher price target of $189, up 55% from recent levels. Qnity has more exposure to "advanced node" chips, he says, which will result in above-average sales and earnings growth.

Chips are getting more complicated, with tiny, nanometer-scale transistors etched using extreme ultraviolet light and stacked on top of one another using some of the most complicated machines ever built by humanity. That complexity means more business per chip for Qnity, a big reason to expect stable, above-average sales growth for years to come.

M&A is another source of potential growth, according to Qnity CEO Jon Kemp. Qnity's balance sheet can handle some deals. It carries about $3 billion in net debt, which is less than two times expected 2026 earnings before interest, taxes, depreciation, and amortization, or Ebitda. That isn't an alarming ratio. The average net-debt-to-Ebitda ratio for S&P 500 industrial stocks is about 1.6 times.

Ebitda is expected to grow about 8% a year for the coming three years. Things can turn out better than that, though. Entegris' Ebitda is expected to grow closer to 10%. Qnity's estimates are also rising. Wall Street projects about $2 billion in 2027 Ebitda. That number was closer to $1.6 billion at the time of the spin.

To be sure, Qnity is a semiconductor-related AI play. That means geopolitics is a risk. Taiwan Semiconductor Manufacturing is one of its largest customers. Most advanced chips are still made in Taiwan. That, however, holds true for the entire semiconductor value chain.

Any AI bubble fears or downturn in chip stocks will impact Qnity, too. Investors already realize that. Qnity shares peaked above $175 in July, before the iShares Semiconductor exchange-traded fund started its summer swoon.

Still, chip demand is growing -- so much so that Elon Musk is planning a $100 billion-plus semiconductor "Terafab" in Texas to meet just SpaceX and Tesla's demand. Musk's estimates are often pie in the sky, but he often gets the trend right.

"AI is the most transformative technology of our time, and we're still in the early days of adoption," Kemp tells Barron's. "I'm excited about the next leg of that transformation, which will be physical AI, where we take AI out of the cloud and data centers and move it into the world of devices, machines, and vehicles."

The world needs more chips, so it needs Qnity.

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This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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October 15, 2026 20:02 ET (00:02 GMT)