SkyWater Technology’s Q1 2025: A Buying Opportunity in U.S. Semiconductor Onshoring

SkyWater Technology (NASDAQ: SKYT) has faced near-term headwinds in Q1 2025 due to delays in U.S. Department of Defense (DOD) funding, which caused its Advanced Technology Services (ATS) revenue to drop 14% year-over-year. However, the stock’s dip presents a compelling entry point for investors focused on long-term strategic opportunities. Beneath the noise of quarterly volatility lies a company positioned to capitalize on secular tailwinds in semiconductor onshoring, quantum computing, and defense modernization. Let’s dissect why the market’s myopic focus on DOD delays overlooks SkyWater’s transformative trajectory.

The Near-Term DOD Drag: A Temporary Headwind

The Q1 results reflect a classic case of “good news, bad news.” The bad: DOD budget delays slowed ATS revenue, which accounts for 70% of SkyWater’s high-margin development work. The good? Management remains confident that resolving these delays will unlock another record ATS revenue year in 2025, with 2024’s $210 million in ATS revenue as a baseline.

But why the confidence? SkyWater’s role as a DMEA-accredited Category 1A Trusted Supplier grants it preferential access to U.S. defense contracts. With $1 billion+ in existing DOD commitments tied to its upcoming Infineon Fab 25 acquisition, the company is uniquely positioned to rebound once funding clears.

Inflection Point #1: ThermaView’s Traction Signals Foundry Resurgence

SkyWater’s Wafer Services segment—driven by its new ThermaView℠ platform—surged 70% sequentially in Q1, hitting $7.5 million in revenue. This proprietary platform, designed for thermal management in advanced semiconductors, is already winning contracts with two major defense primes.

Why does this matter? ThermaView isn’t just a product—it’s a strategic differentiator. It allows SkyWater to transition from a pure-play foundry to a provider of end-to-end solutions, enabling high-margin services for next-gen defense systems. With margins expanding to 24.2% (up 730 basis points year-over-year), the Wafer Services growth proves SkyWater’s model can scale even amid DOD headwinds.

Inflection Point #2: The $1B+ Fab 25 Acquisition – A Game-Changer for U.S. Onshoring

SkyWater’s pending acquisition of Infineon’s Austin-based Fab 25 is the single most important catalyst for long-term growth. This facility, a “sweet spot” for foundational semiconductor nodes (130nm–45nm), will:
- Double SkyWater’s production capacity, directly addressing U.S. supply chain vulnerabilities in defense and industrial semiconductors.
- Secure a $1 billion+ supply agreement, ensuring immediate demand post-acquisition.
- Enable quantum manufacturing at scale, as its nodes align perfectly with superconducting qubit requirements.

The Fab 25 isn’t just a factory—it’s a moat. With U.S. government mandates to onshore critical supply chains, SkyWater’s domestic foundry becomes irreplaceable for defense contractors.

Inflection Point #3: Quantum Partnerships – SkyWater’s Next Growth Frontier

While the DOD delays dominate headlines, SkyWater’s quantum partnerships are quietly building a second growth engine.

• D-Wave Breakthrough: SkyWater’s superconducting qubits enabled D-Wave’s quantum supremacy milestone in simulation, proving its manufacturing prowess.
• Expanding Ecosystem: New collaborations with Quantinuum, IonQ, IBM, and Rigetti in 2025 are diversifying SkyWater’s quantum footprint. These partnerships target advanced quantum IP cores and ASICs, positioning SkyWater as the go-to foundry for multiple quantum hardware platforms.

The quantum market is nascent but explosive. McKinsey estimates it could hit $1T in economic impact by 2040—and SkyWater is already a supplier to leaders in the space.

Margin Expansion: The Underrated Bullish Case

Skeptics fixate on SkyWater’s Q1 non-GAAP net loss of $3.7 million. But they’re missing the bigger picture: SkyWater’s margin trajectory is improving despite headwinds.

• Gross Margin Jumps: 24.2% in Q1 vs. 16.9% a year ago, driven by higher Wafer Services utilization and cost discipline.
• Adjusted EBITDA Resilience: $4.0 million in Q1 (6.6% of revenue) underscores operational stability.

The Fab 25’s economies of scale and quantum’s high margins will accelerate this trend. By 2026, SkyWater could be a profitable, high-margin leader in two of the world’s most strategic markets: defense and quantum.

Why Buy Now? The Stock’s Undervalued, and the Catalysts Are Imminent

The market is pricing in DOD delays as a permanent issue, but the reality is:
1. DOD funding will resolve—the U.S. government’s $3.5 trillion budget process is a recurring speedbump, not a roadblock.
2. Fab 25 closes in mid-2025, unlocking immediate capacity and revenue synergies.
3. Quantum demand is accelerating: SkyWater’s partnerships will translate into revenue as quantum systems scale.

At current prices, the stock trades at 8x 2025 consensus revenue estimates—a discount to peers like Intel and Applied Materials. This undervaluation ignores the $1B+ supply agreement, the quantum tailwind, and the strategic importance of domestic semiconductor production.

Final Call: Buy SKYT – The Dip is a Strategic Entry Point

SkyWater is at an inflection point. Near-term DOD delays are a speedbump in a multi-year journey to dominate U.S. semiconductor onshoring and quantum manufacturing. With the Fab 25’s scale, ThermaView’s traction, and quantum partnerships driving secular growth, investors who buy here will benefit as the market finally catches up to the story.

Act now—this dip won’t last.