After IQE PLC (AIM:IQE) strengthened its balance sheet and improved its growth outlook after securing fresh investment from major long-term customer MACOM, Panmure Liberum said it was upgrading its forecasts but downgrading its rating after a strong rise in the shares in recent weeks.
The Cardiff-based compound semiconductor group revealed on Monday night that it has agreed an £81 million fundraise, made up of a strategic investment from MACOM alongside a placing, retail offer and convertible loan note.
Panmure Liberum analyst Harvey Robinson said the MACOM investment is "very encouraging" and the balance sheet is now "secured", with the company able to retain its Taiwanese operations that had been put on the block last year in order to raise funds.
He predicted the company would move into a net cash position of around £29 million following debt repayment.
The deal also includes long-term supply agreements with MACOM, positioning IQE to scale production across key technologies such as indium phosphide (InP) and gallium nitride (GaN), Robinson said, which are increasingly used in AI data centres.
Sector momentum has been strong, with demand for photonics components rising after major investments by Nvidia signalled that photonics, especially InP technology, is a critical bottleneck in AI systems.
"Nvidia’s $2 billion investment in both Lumentum and Coherent has focused the market on the importance of compound semis and optical components (InP) in AI datacentres," the analyst said.
"The market’s excitement in the AI opportunity has driven all compound semiconductor names much higher this year."
IQE expects revenue of £97 million in the 2025 calendar year, with improved earnings forecasts supported by stronger market conditions and a solid order book.
Panmure Liberum's target price has been raised to 40p from 20p, but the rating was downgraded to 'hold' from 'buy' following recent gains, with Robinson calling for IQE still "to deliver consistent cash generation over a cycle".