Will BlackBerry shares ever recover and bounce back?

I don’t know about you, but I have very fond memories of BlackBerry handheld devices, which became ubiquitous and addictive for anyone who wanted to feel connected in the first decade of the millennium. At one point, it seemed as though BlackBerry couldn’t put a foot wrong.

And then suddenly it all went “reels of cotton” as my old dealing partner used to say

BlackBerry failed to recognise and adjust to the threat of smartphones and the introduction of App Stores at a time when, for many users, secure messaging and access to emails just wasn’t enough anymore.

And by the time they tried to change, it was too little too late; Apple and Android had carved up the global mobile phone market between them.

And that might have been that.

However, BlackBerry was more than a mobile device maker; it was a secure messaging ecosystem with its own proprietary software and servers.

Timing is everything, they say, and just as BlackBerry’s handset business was winding down, the Auto sector was looking for a reliable communications system to keep in touch with its increasingly networked products, and BlackBerry had the solution they needed.

Blackberry (formerly known as Research In Motion or RIMM) got a reprieve and avoided being consigned to the history books. BlackBerry’s QNX software is now embedded in more than 275.0 million vehicles worldwide.

And that’s where we could have left the story, were it not for the rise of AI and the Internet of Things or IOT

Many people believe that it’s robots and autonomous devices that are the future of Artificial Intelligence, rather than LLMs and chatbots.

This is a broad church and covers co-bots (robot co-workers) in factories, warehouses, construction sites, etc. Delivery drones and autonomous vehicles, intelligent sensors and detectors that can increase security, energy efficiency, and manage production lines, logistics and distribution.

There are myriad use cases for what’s known as Physical AI, but all of these have one requirement in common, and that is the need for a secure and reliable communications layer, and guess who is well placed to provide that?

BlackBerry, of course, in a note to clients on the stock’s prospects last week, Stifel analysts wrote about the company being:

“A mission-critical software layer in the physical AI stack and a dominant partner to silicon leaders like NVIDIA, Qualcomm, and AMD, powering the build-out from cloud to edge, across cars, robots, factories, and medical devices.”

Performance

Blackberry stock, and I am focusing on the US listing here (which trades as BB US), is up by just over +200.0% YTD. A big chunk of those gains have been registered in the last 3 months, during which time the stock has posted 27 new highs.

There may be a lot more to come, too, because BlackBerry posted blowout earnings last week, with Q1 revenue growing +26.0% vs last year.

While EPS came in at 4 cents per share and was the 4th positive in the last 5, and constituted a+ 44 % jump on the prior period.

That means that BlackBerry was able to raise its full-year EPS forecast to between 16 and 20 cents per share, on expectations of revenues in the range of $594.0 to $621.0 million.

Pros

• QNX software is becoming an Auto industry standard, but the good news is that 20.0% of the division’s sales now come from non-auto applications, and that’s likely to grow. Nvidia recently announced Halos, its full-stack safety application for Physical AI/Robotics. QNX software is in that IT stack.
• The total addressable market for platform/middleware in the IOT is estimated to be worth $23.0 billion by 2029, with potential to grow to $64.0 billion by 203 leaving BlackBerry plenty of headroom for growth.

Cons

• The IOT is still in its infancy, and growth in this area may not be linear.
• AI itself could disrupt BlackBerry’s business. One only needs to look at the SaaS sector to see the impact that can have on stock prices. Additionally, the misuse of frontier AI models, such as Mythos, could breach BlackBerry’s secure communications layer, though that is also a threat to the whole industry.

Technical Outlook

As you can see in the chart above, BB US has broken out, gapping higher and trading well above its recent range, post earnings. If historic resistance at $11.90 and $12.44 can be overcome, then there is very little in the chart until $20.00 and the 10-year at $28.77.
RSI 14 is currently just above 74, and though that’s in overbought territory, it’s well below levels seen at the beginning of June at 92, which suggests that the stock can run further from here in the short term.

Fundamental Outlook

Hard to find fault with a stock that’s making all the right noises and which saw 5 brokers raise their price targets post earnings. The only fly in the ointment is some of its ratios, for example, a forward PE ratio of 75.20 times. However, given the revenue and earnings trajectory that BlackBerry is on, and the potential that exists for it to grow, its non-auto segments should fall into line in the next 6 to12-months. Of course, BlackBerry will still need to win orders and renew contracts to drive a PE reduction, but of course, we shouldn’t ignore the fact that the company has been and will continue to buy back its own stock.