DuPont Is the Unexpected Benefactor of the AI Boom

Key Points

• The AI boom helped turn DuPont around after 10 consecutive quarters of YoY revenue declines; they posted back-to-back quarters of YoY revenue gains, posting 4.4% revenue growth in Q3 2024.
• DuPont’s Semiconductor Technology segment experienced 20% YoY sales growth directly stemming from the rising demand for AI technologies and demand recovery in China.
• DuPont plans to spin off its Electronics and Water divisions in 2025, resulting in three separate publicly traded companies.

The name DuPont is often associated with specialty chemical and materials products. DuPont pioneered the creation of cellophane in the 1920s and Teflon, Neoprene and nylon in the 1930s. Through the years, the company continued to develop and evolve many familiar chemicals, including freon, polyethylene, silicone, plastics and genetically modified organisms (GMOs) in the 1980s.

Evolution From Chemicals to Technology Materials

In 2015, Dupont merged with Dow Chemical to form DowDuPont, the largest chemical conglomerate in the world. In 2019, DowDuPont split into three public companies. Dow Inc. NYSE: DOW focuses on materials sciences for packaging, infrastructure, and consumer care. Corteva Inc. NYSE: CTVA operates in agriculture, focusing on seeds and crop protection. DuPont de Nemours Inc. NYSE: DD, also referred to as simply DuPont focuses on technology-based materials and solutions. DuPont provides materials essential to semiconductor fabrication, solar panels, LEDs, and electric vehicles (EVs) encompassing the computer and technology, aerospace, auto/tires/trucks, and industrial sectors.

DuPont’s Role in the Semiconductor Industry

Some of the key materials that DuPont manufactures for the semiconductor industry include photomasks, which are the light-sensitive materials used in photolithography to transfer circuit patterns onto silicon wafers, dielectrics, conductive materials for interconnects on chips and chemical mechanical planarization (CMP) slurries used for polishing silicon wafers for a smooth and flat surface. Their materials are crucial for semiconductor manufacturing equipment (SME) makers like Lam Research Co. NASDAQ: LRCX and ASML Holding N.V. NASDAQ: ASML.

The AI Boom Directly Benefits DuPont Materials in the Chip Industry

DuPont also supplies the materials necessary for advanced packaging, including encapsulation materials to protect semiconductor devices and thermal interface materials for heat dissipation. The artificial intelligence revolution, which has led to the surge in GPUs, NAND flash, high-bandwidth memory (HBM), and application-specific integrated circuits (ASICs), has a direct impact on DuPont's business.

Over 35% of its total revenue comes from its Electronics segment, which includes semiconductor solutions and advanced electronic products. This is where the connection between AI and DuPont makes a material impact on its business. The AI boom enabled DuPont to post a second consecutive quarter of revenue growth after 10 straight quarters of YoY revenue decline.

The AI Boom Helps Drive DuPont’s Q3 Earnings Beat

DuPont's growth engine is driven by its Electronics and Industrial segment. While organic sales rose 10% YoY, its Semiconductor Technologies segment saw a 20% YoY jump in revenues. This segment produces the materials used during the semiconductor fabrication, assembly, and advanced packaging process. The 20% growth was a result of rising demand for AI technologies, recovery in consumer electronics, and rebounding demand in China. DuPont posted stronger operating leverage with a 150 bps improvement in operating EBITDA margin to 26.8%, which led to a 15-cent EPS beat over consensus estimates. DuPont also raised its full-year 2024 revenue guidance up to $12.50 billion from a previously forecast range of $12.365 billion to $12.40 billion versus $12.44 billion consensus estimates.

DuPont CEO Lori Koch expressed plainly in the conference call, “From an end market view, the electronic and industrial segment saw another quarter of double-digit sales growth in both the semi and interconnect solutions lines of business, which continued to benefit from strong demand for advanced node chips and AI-enabling technologies.”

Splitting Again Into 3 Companies

History will repeat itself as DuPont plans to split into three separate companies once again: New DuPont, Electronics, and Water. The New Dupont will focus on automotive, healthcare, and safety and protection products. The Electronics and Water divisions will be divided into separate public companies in a tax-free separation in 2025. 

DD Triggers a Descending Ascending Triangle Breakout 

A descending triangle is normally a bearish chart pattern indicator of lower highs on the bounce against flat-bottom support. At the apex point, the descending upper trendline converges with the flat-bottom horizontal lower trendline support. A breakdown triggers if the stock falls below the lower trendline support. A breakout triggers if the stock surges above the upper trendline resistance.

DD formed the descending trendline at the $90.06 swing high as it capped all bounce attempts at lower lows to converge with the flat-bottom support trendline at $81.35. The daily anchored VWAP sits at $85.08 still acting as a resistance. The daily RSI is slipping to the 49-band. Fibonacci (Fib) pullback support levels are at $83.67, $81.35, $77.27, and $75.14.

DD’s average consensus price target is $95.42 implying a 13% upside, and its highest analyst price target sits at $107.00. It has nine analysts' Buy ratings, two Holds, and two Sell ratings. The stock has a 1.81% annual dividend yield.   

Actionable Options Strategies: Bullish options investors can enter DD on a pullback using cash-secured puts at the Fib pullback support levels or take a bullish call debit spread for an uptrend continuation using less capital than owning the stock while minimizing the downside for capped upside gains.