Vicor Corporation VICR shares have gained 4.5% since it reported third-quarter 2026 results on Oct. 20. The uptick can be attributed to strong AI-driven demand and rising recurring royalty revenues, which lifted sales, margins and profitability.
The company reported third-quarter 2026 earnings of $1.33 per share, missing the Zacks Consensus Estimate by 4.32%. The figure increased 111.1% year over year.
Revenues surged 78.5% year over year to $197.11 million and surpassed the consensus estimate by 5.4%. Strong Advanced Products sales and higher royalty income supported growth. The company’s order backlog increased 166% year over year to $406 million, reflecting robust demand.
VICR's Advanced Products Revenues Accelerate
Advanced Products revenues, including royalties, increased 47.5% sequentially to $138.9 million. The business accounted for 70.4% of total revenues, up from 65.7% in the preceding quarter.
Vicor Corporation Price, Consensus and EPS Surprise
Vicor Corporation price-consensus-eps-surprise-chart | Vicor Corporation Quote
Brick Products revenues increased 18.4% sequentially to $58.3 million and represented 29.6% of total revenues.
Shipments to stocking distributors increased 24.8% sequentially and 16.2% year over year. Exports accounted for approximately 36.1% of revenues, down from 46% in the second quarter of 2026.
Vicor Benefits From Expanding Royalty Income
Product revenues totaled $130.5 million, up 47.1% year over year. Royalty revenues surged 206.6% year over year to $66.6 million from $21.7 million. Sequentially, royalty revenues increased 119.1%, supported by licensing agreements.
The company granted its first vertical power delivery (VPD) license to a leading artificial intelligence (AI) original equipment manufacturer at Stage 2-unit royalty rates. Management noted that part of the quarterly royalty contribution reflected initial payments, while the underlying licensing arrangements provide recurring income.
Vicor also received inquiries from hyperscalers regarding broader licensing agreements. Management expects royalty income to grow as additional customers adopt its intellectual property, although the timing of payments and new agreements could create quarterly fluctuations.
VICR's Backlog Reflects Strong Market Demand
The book-to-bill ratio remained above 1, while backlog increased 7% sequentially to $380 million. Management highlighted approximately $100 million in bookings during the first two weeks of the fourth quarter, including a substantial order for second-generation VPD modules.
Demand remained strong across AI computing, automatic test equipment (ATE), industrial, aerospace and defense markets. The company's ATE business, which serves semiconductor and memory testing applications, now generates more than $100 million in annual revenues.
Management highlighted growing customer interest in second-generation VPD technology following demonstrations at Open Compute. The technology aims to address increasing power density and efficiency requirements for advanced AI processors.
Vicor’s Margins Expand Despite Rising Expenses
Gross profit increased sequentially to $134.7 million from $83.1 million. Gross margin expanded 1,030 basis points to 68.3%, benefiting from higher royalty revenues, improved product mix, manufacturing efficiencies and increased volumes.
Operating expenses increased 29.6% sequentially to $62.5 million. Legal expenses, a substantial portion of which are linked to royalty revenues, increased approximately $11.1 million to $16.1 million. Management expects legal expenses to average approximately 20% of royalty revenues in the near term.
Operating income surged 245.1% year over year to $72.1 million from $20.9 million in the year-ago quarter.
VICR Strengthens Cash Position and Expands Capacity
As of Sept. 30, 2026, cash and cash equivalents totaled $513.1 million compared with $453.6 million in the previous quarter.
Operating activities generated $69.7 million in cash compared with $34 million in the second quarter.
Vicor acquired two additional manufacturing sites within 30 miles of its existing Andover facility. The planned Fab-2 and Fab-3 facilities could increase manufacturing capacity nearly fivefold relative to Fab-1.
Management expects initial equipment deployment at Fab-2 in the second quarter of 2027. The expansion will initially target capacity-constrained manufacturing processes. The company expects to fund its expansion plans without raising additional capital.
Vicor Expects Further Product Revenue Growth
Vicor expects fourth-quarter 2026 product revenues to increase approximately 10% sequentially. The outlook assumes another double-digit sequential increase in Advanced Products hardware revenues.
Management also expects at least $43 million in fourth-quarter royalty revenues, assuming no additional licensing agreements. Existing arrangements could generate incremental royalties beyond this baseline.
The company anticipates further margin expansion as revenues increase and manufacturing utilization improves. However, near-term capacity constraints at Fab-1 remain a consideration as Vicor works to expand production capabilities and meet growing customer demand.
Zacks Rank & Upcoming Earnings to Watch
Vicor currently sports a Zacks Rank #1 (Strong Buy).
Alkami Technology ALKT, ASE Technology ASX, and Entegris ENTG are some other top-ranked stocks in the broader Zacks Computer and Technology sector. While ASE Technology sports a Zacks Rank #1, Alkami Technology and Entegris carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Alkami Technology, ASE Technology and Entegris are expected to report their quarterly results on Oct. 28, Oct. 29 and Oct. 29, respectively. While Shares of ASE Technology and Entegris have surged 163.5% and 75.3%, respectively, Alkami Technology shares have plunged 34.5% in the year-to-date period.
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This article originally published on Zacks Investment Research (zacks.com).