Following our industry manual on intellectual property (IP) and patents earlier this year, it’s time for a proper deep dive into Rambus (RMBS). Alongside EDA software platforms, IP forms the foundational layer of the semiconductor and electronics supply chain.
Rambus itself is an interesting case study. In years past, the company was known for being something of a “patent troll,” initiating infringement claims against its customers, especially the large memory chip manufacturers. The “new” Rambus, however, has become a much better business partner. This journey has led it down the path of being a “fabless chip designer” in addition to its traditional role as an IP developer and licensor.
How does an IP business model work?
First, let’s recap what IP is. In the semiconductor industry, IP could refer to reusable units of logic block, chip layout design, or similar that is the IP/patent of one company. Those IP blocks can be licensed (for a fee) to another party for use in their own chip designs.
Typically, a company like Rambus will sell a license to customers, allowing them to access its IP library. Additionally, if any of its IP is included in a manufactured product, the IP licensor is entitled to a royalty – a small percentage of the revenue from the final chip product.
In a slide from its 2024 annual report, Rambus outlines its competitors and top customers in memory chip interfaces and IP licensing.
On the IP licensing front, Rambus competes heavily with the major EDA platforms, Cadence Design (CDNS) and Synopsys (SNPS). A couple of years ago, to consolidate its IP development around its most critical core, Rambus sold its physical layer (PHY) IP to Cadence while retaining its digital layer IP assets. Just as it sounds, physical layer (PHY) IP relates to the actual hardware itself and how it operates. The digital layer, in contrast, is focused on how data (the 1s and 0s) is represented and handled within the computing system.
Breaking down how Rambus makes money
Rambus provides a helpful visual to illustrate the components it develops and sells. The image below shows a generalized data center logic circuit board with accompanying memory, typical of what you might find in a high-performance computing AI data center server.
- On the left (in blue) are the actual memory chip interfaces that Rambus designs and sells. This represents its newer, “fabless” business model.
- On the right (in green) are the IP logic blocks. Segments of this IP are incorporated into a GPU or other logic chip die to control the interface with surrounding memory and networking components. These are the parts Rambus sells via its traditional licensing and royalty agreements.
The high-growth fabless business betting on AI data centers
Let’s take a closer look at the company’s high-growth “fabless” design business. Within this segment, Rambus’s fastest-moving product is for data center applications, specifically concerning the interface where DRAM memory plugs in. The picture below shows a DDR5 DRAM server interface.
As one might expect with the AI data center boom, this fabless business has been a significant driver of growth for Rambus in recent years. In the bar chart below, the chip interface fabless business is shown in blue, the still-potent IP business is in orange, and lumpy contract engineering revenue is in pink.
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To illustrate the new, partner-friendly Rambus model, we’ve also overlaid the licensing bookings metric on top of the actual revenue in the above chart. Notice how flat licensing bookings have been? This is in stark contrast to a company like Arm Holdings, which has been trying to squeeze customers for higher licensing revenue. That strategy runs the risk of being labeled a not-so-friendly partner or a “patent troll” – remember Arm’s failed lawsuit against Qualcomm last year? (Arm has all but confirmed rumors it will design and sell its own chips too, kind of like Rambus.)
We appreciate this newer Rambus business model, which takes a more measured approach to IP management while finding value-added components to design and sell directly to key customers, like the memory chip giants SK Hynix, Samsung, and Micron, who purchase many of these memory interfaces.
A closer look at the financials and valuation
As you probably deduced from the revenue chart, Rambus is in growth mode. Total revenue increased by 30% year-over-year in Q2 2025. The business is also highly profitable, generating an excellent adjusted cash from operations margin of 55% thanks to its high-margin IP business.
On a GAAP basis, the operating margin was 37%, still very good. The chart below shows the margin trend leading up to the Q2 report. Management believes it can reinvest these profits to drive more high-end and differentiated products and IP over time. Upcoming products supporting next-generation AI data center development, like HBM4, are prime examples.
Looking ahead, the midpoint of Q3 guidance calls for revenue of $177 million, representing a year-over-year increase of over 20%. While this suggests a potential seasonal slowdown, it’s important to remember that Rambus’s IP business can be a leading indicator for the industry. The re-acceleration in the accelerated computing market (full ramp-up of Nvidia Blackwell this year) may have already been factored into Rambus’s results, but strong growth is still clearly in play.
Even with a potential moderation, Rambus is generating plenty of profitable growth from this AI data center secular trend. Based on forward estimates for both earnings per share and free cash flow, the company expects more profit in the next year, and its valuation still looks more reasonable than not.
The investment takeaway
If you’re looking for a way to play the memory segment of the AI data center boom without needing to babysit the volatile memory manufacturers themselves, Rambus may have a place in your “basket” of semiconductor stocks (alongside EDA platforms, manufacturing equipment makers like Lam Research, and consumables suppliers like Entegris, as an example).
However, it’s important to mind the cycle. Given the company’s small size and its position ahead of new customer product launches, Rambus stock can be volatile as it moves through frequent IP and product cycles.
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