Rambus Inc. (NASDAQ:RMBS) designs memory chips for data centers and licenses chip technology to other companies. Its main chips help data move between a server’s processor and its memory. This business is gaining importance as AI servers handle bigger workloads. The company also earns royalties from patents and chip designs it licenses to others, and that licensing business is very profitable. Rambus beat its own guidance in the second quarter and raised its outlook for the third quarter, but the stock is still well below its high from earlier this year.
Rambus ranks 10th in our list of the 10 best AI stocks to buy according to billionaire Stanley Druckenmiller.
Bull Case
Rambus can keep growing faster than the server market because each new generation of servers needs more of its chips. New server platforms add more memory channels per processor, and every added memory module needs its own set of Rambus chips. The company also sells companion chips for power management and temperature sensing that go on the same modules, and management expects those to become a bigger part of its sales. A new type of memory module called MRDIMM is expected to start ramping next year, and it carries more chips than a standard module. The licensing business adds steady, high-margin cash, and AI spending keeps pushing demand for servers higher.
Jim Cramer also talked about RMBS earlier this year. Read Cramer’s comments in detail here.
Bear Case
Rambus’s growth engine earns lower margins than its older business, so faster growth can pull profit margins down. Licensing earns very high margins, but it comes from older contracts and moves around from quarter to quarter. As chips become a bigger share of revenue, the company’s overall margins fall because chips business has lower margins. The timing of MRDIMM is also uncertain, and tight supply could push the ramp out further. The stock swings more than most chip stocks, and the current price already assumes a lot of future success.
Valuation
Rambus Inc. trades at a forward P/E of about 37, almost twice the S&P 500’s forward P/E of about 19. Revenue grew about 17% over the past year, faster than the sector median of about 13%, and GAAP earnings per share grew about 28% in fiscal 2025, against about 10% a year for the market over the long run. AI server demand drives that growth, so some premium makes sense. But the premium is large. The forward P/E is about 32% above Rambus’s own five-year average, and its enterprise value is about 15 times its sales, also about 32% above its own five-year average. The price is fair only if AI demand keeps growth well above the market’s, and if growth fades toward 10%, a P/E of 37 looks too high for Rambus Inc..
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