One month’s average full-time take-home pay, or £2,636, invested in this red-hot FTSE 250 tech stock three months ago would now be worth £6,384.
That’s a quarterly gain of 142.2% from a business most people have heard of for an entirely different reason. But after a brutal week, is the Raspberry Pi (LSE: RPI) story starting to crack?
Crunching the numbers
The longer-term numbers are extraordinary. As I write (25 June), the shares sit at 796.5p, up 166.7% since the start of January. But zoom in and the picture gets a bit messier:
- Year-to-date: +166.7%
- 3 months: +142.2%
- 6 months: +139.1%
- 1 week: -12.8%
That combination of a huge multi-month rally next to a sharp double-digit fall this week might be telling an interesting story. So what’s actually behind both the surge and the mini reversal?
Blowing Raspberries?
The Cambridge-based designer produces single-board computers, compute modules, and semiconductors. It’s best known for the tiny, affordable computers beloved by hobbyists, schools, and increasingly industrial customers with the rise of artificial intelligence (AI).
For the first time, semiconductor device volumes exceeded those of boards and modules — a milestone on our journey towards a two-franchise business.
Eben Upton, Chief Executive, Raspberry Pi Holdings
The valuation is the real talking point here. With the shares trading on a price-to-earnings (P/E) ratio of 92.5 and a market-cap of £1.5bn, at the time of writing, the market’s pricing in years of continued hypergrowth.
So is there still value here or is the stock overheating on AI mania right now?
What are the risks?
A double-digit share price drop in a single week, sitting on top of a near-tripling year-to-date, is a textbook sign of a value trap building.
This is a relatively small, thinly-traded stock, and that combination of a rich valuation and high volatility means swings in either direction can be swift and large. The shares are still some way below their 52-week high of 1,082p, which only adds to the sense that sentiment here can shift quickly.
There’s also some concentration risk worth highlighting. A meaningful chunk of revenue comes from industrial and embedded customers, and any slowdown in chip demand, or a single large customer pulling back, could hit earnings hard.
My verdict
This is a really interesting company that has really come to the fore as interest around AI has reached fever pitch. However, I think the valuation has run well ahead of the fundamentals, and this week’s sharp fall may be the market starting to acknowledge that.
I’m not currently invested, and I’d want to see some further evidence of stabilised demand before buying in. For now, it’s one I’m watching closely rather than acting on.
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Ken Hall does not hold any positions in the companies mentioned.
