Written by: U.S. Stock Kitten

Investment Thesis

Netlist's (NLST) market position and future development prospects have fundamentally changed due to a recent licensing agreement reached with Samsung (Samsung, SSNLF). Based on the cash flows expected from this agreement, the company currently appears undervalued. According to the licensing/settlement agreement, Samsung will provide NLST with certain documents that may help NLST enhance its competitive advantage in future intellectual property (IP) lawsuits against other companies, thereby increasing the likelihood of reaching more licensing agreements.

Samsung agrees to provide us with or submit certain information, documents, or statements for our future use in ITC actions against third parties. — NLST SEC Filing for Q2 2026

A Fundamental Shift in Market Position

NLST is primarily a reseller of memory chips. As AI infrastructure drives a shortage of memory components and pushes prices higher, the company's growth prospects have changed. Due to NLST's long-term procurement agreements with companies like SK hynix, which have fulfilled supply commitments even during tight supply periods, NLST has been able to secure valuable memory chip resources while others have struggled to obtain the required quantities. By Q2 2026, NLST's revenue surged to approximately $110 million, an increase of 163% year-over-year. Of this, approximately $104 million (or 94%) came from its resale business. But that's not all. NLST has been engaged in legal battles with memory chip manufacturers for years. Earlier this month, Samsung, one of the defendants in NLST's lawsuit, reached a settlement with the company. This settlement is substantial and significantly alters NLST's market position. First, Samsung agreed to pay NLST $200 million (net of withholding tax). Then, for the next five years, they will pay up to $27.5 million each quarter, bringing the total potential payment to $550 million, plus the previously paid $200 million (net of withholding tax). It is important to note that the quarterly payment amount will depend on certain conditions, including Samsung's revenue situation.

But that's not all. Samsung has agreed to provide information that can help NLST in its intellectual property litigation, which may strengthen NLST's case against Micron (MU). Currently, Micron is appealing a lower court ruling that supports NLST and orders Micron to pay NLST $445 million in damages for patent infringement.

In Micron's appeal against the jury verdict from the U.S. District Court for the Eastern District of Texas in 2024, the verdict found that Micron willfully infringed Netlist's 912 and 417 patents and awarded Netlist $445 million in damages. — NLST Q2 2026 Earnings Call

Equally important, the settlement agreement grants NLST the right to procure up to $300 million worth of NAND and DRAM products from Samsung each year for the next five years. This is a highly valuable arrangement, as some market participants expect that memory chips will remain in a state of shortage for many years to come. Furthermore, Samsung has now become a shareholder of NLST. Based on the company's 34.95 million shares outstanding as of August 6, 2026, Samsung holds 10 million shares, accounting for about 2.9% of the issued shares.

Growing Revenue

NLST's revenue is naturally growing as memory chip prices rise. In the first half of 2026, the company's revenue tripled to approximately $215 million, compared to $71 million in the first half of 2025, primarily driven by increased memory chip resale activity. In the second half of 2026, the company will experience significant revenue growth from additional licensing revenues brought by the Samsung agreement. According to the agreement terms, NLST will receive a one-time licensing payment of $239 million pre-tax, in addition to $32.9 million in quarterly pre-tax licensing payments for the next five years.

Netlist will receive a $200 million licensing fee (net of Korean withholding tax), which is a pre-tax amount of $239 million. In addition, Netlist will receive recurring licensing fees for the next 20 quarters, up to $27.5 million each quarter, also net of taxes, calculated based on revenue, yielding a pre-tax amount of $32.9 million. — Gail Sasaki, NLST CFO, August 2026

This new licensing revenue will fundamentally change the company's revenue outlook. Do not forget that NLST now has the right to procure up to $300 million worth of NAND and DRAM products from Samsung each year. Given the current high demand and short supply for storage devices, these products should sell quickly and become part of NLST’s resale business. This year, NLST's product sales achieved a gross margin of approximately 21%. If we assume the profit margin remains consistent, this $300 million cost would correspond to about $379 million in sales revenue. My judgment is that as the company gradually establishes sales channels, NLST will gradually exercise its rights to procure equipment from Samsung. The sales model below assumes that NLST will gradually increase its procurement from Samsung over the next two quarters in 2026, reaching the agreed annual procurement cap of $300 million by Q1 2027.

Currently, a key uncertainty factor is the development trajectory of NLST’s current business. The procurement agreement with SK hynix expired in April 2026. Although SK hynix continued to supply NLST with memory components after the agreement expired, future continuity cannot be guaranteed. The demand for SK hynix memory chips far exceeds supply, and the company may allocate more capacity to larger customers, namely hyperscalers driving data center infrastructure construction. However, doing so would contradict SK hynix's current critical strategic initiative of re-emphasizing long-term customer relationships to smooth out the inherent cyclicality of memory component business. NLST is a long-term customer; abandoning supply support during a rising demand cycle would contradict SK hynix's current emphasis on long-term cooperative strategies and conflict with the effects brought by similar actions taken by other customers during previous down cycles in memory.

We have always had a supply agreement with hynix. We continue to receive supply support from hynix, including current extremely tight DDR4 and DDR5 products. Therefore, in terms of procuring tight DRAM products, we are in a better position compared to most companies. — Chuck Hong, NLST CEO, Q2 2026 Earnings Call

Another important assumption is the proportion of NLST’s modular storage system sales revenue to overall revenue. The cooperative terms in the recent settlement agreement may create opportunities for NLST to sell more proprietary systems in the long term. In the short term, management has indicated that investors should expect Q3 2026 sales to be close to those of Q2 2026. The following backup model uses a rolling average method to calculate NLST’s third-party resale business and modular subsystem sales revenue, forecasting through the end of FY 2027.

We currently expect Q3 product revenue to be similar to that of Q2 2026. — Gail Sasaki, NLST CFO, Q2 2026 Earnings Call

[Original image location: NLST Revenue Forecast Model (Author's Estimate)] Technical Note: Under the Samsung agreement, NLST can procure up to $300 million worth of Samsung DRAM and NAND products. If we assume these procurements are evenly distributed, the quarterly procurement amount would be $75 million. The figures in the model are $95 million instead of $75 million because the model assumes NLST purchases products according to the full quarterly procurement amount and resells these products at a 21% gross margin. This is consistent with the gross margin level achieved by the company over the past several quarters.

Surging Profitability

The Samsung agreement fundamentally changes NLST’s profitability structure. Licensing income is a high-margin revenue source that will enhance the company's overall profit margin. However, this growth will be offset by increased legal fees. NLST's attorneys are entitled to 7.5% of the amount the company receives from the Samsung settlement agreement. From my understanding, this percentage applies to both the one-time payment and the net amount of quarterly payments. Finally, we should also expect NLST's tax burden to increase significantly, primarily due to withholding taxes imposed by the Korean tax authorities.

The company’s legal counsel responsible for the Samsung litigation is entitled to receive a fee equal to 7.5% of the payment amount to the company when funds under the Samsung licensing agreement are received. — NLST Q2 2026 SEC Filing

In Q1 and Q2 of 2026, NLST’s gross margin was close to 21%. The following backup operating profit margin model first assumes that the gross margin for all business entities remains consistent with the last two quarters. I also assume that selling, general and administrative expenses (SG&A) will increase. However, I assume that the growth rate will be lower than the revenue growth rate to reflect the economies of scale, whereby administrative expenses are spread over more sales units as sales volume increases. Research and development (R&D) expenses should also increase, as the company has now achieved significant profits through intellectual property enforcement actions. I assume that the proportion of R&D expenses to revenue will gradually increase, reaching 6.5% of revenue, consistent with the company’s historical average, as new hires and the procurement and installation of R&D-related properties, facilities, and equipment proceed.

[Original image location: NLST Operating Profit Margin Forecast Chart (Data by YCharts)] Although NLST has reached a settlement with Samsung, the company is still in legal battle with Micron, which is appealing the lower court ruling that supports NLST. Therefore, it is reasonable to assume that NLST will still bear foundational legal costs by 2027, as well as commissions related to the Samsung settlement. NLST's lawyers are entitled to 7.5% of the net settlement proceeds from Samsung. This percentage applies to the net settlement amount, namely the $200 million one-time payment and the $27.5 million quarterly license fees. Foundational quarterly legal fees are calculated based on the average legal costs of the last 10 quarters, as these fees may fluctuate significantly with the legal process. For instance, in the first half of 2026, legal fees related to intellectual property reached $26 million, exceeding the total legal expenses for the entire 2025 fiscal year. Hence, I assume foundational legal fees to be $8.4 million per quarter. It is noteworthy that NLST is currently involved in lawsuits against Super Micro Computer (SMCI), Alphabet (GOOG) (GOOGL), Micron, and other companies. Due to the one-time settlement income being recognized in Q3 2026 (after the agreement is signed this month), legal fees for this quarter will reach their peak level, after which they will return to foundational legal fee levels plus the 7.5% attorney fees corresponding to the quarterly licensing fees. The company's debt is extremely low, only $4 million, and over the past two quarters, net cash has been well above this amount, resulting in net interest income. For example, net interest income for Q2 2026 was approximately $30,000, while it was $50,000 in Q1 2026. This settlement agreement will further enhance this trend. NLST had $31 million in cash and cash equivalents at the end of Q2 2026. Currently, the one-month U.S. Treasury yield is at 3.686%. The ongoing income from the licensing agreement, especially the $27.5 million quarterly portion, will enhance the company's liquidity, allowing it to invest more funds in interest-earning assets. If we assume the company invests 75% of the $200 million one-time payment in one-month U.S. Treasuries, the interest income would reach $5.53 million annually, or approximately $1.38 million quarterly.

NLST carried forward a net operating loss (NOL) of $300.3 million at the beginning of 2026, which theoretically allows the company to use past losses to offset future taxable income, thereby reducing its tax burden.

As of December 27, 2025, we have $300.3 million in federal net operating loss carryforwards. — NLST FY 2025 10-K filing

The table below assumes that NLST's NOL will be nearly consumed by the end of Q4 2026. For pre-tax income not affected by Korean withholding taxes, income tax will be calculated at a rate of 21%.

[Original image location: NLST Financial Forecast Model (Author's Estimate)]

Final Thoughts

The Samsung settlement fundamentally changed NLST's market position. The agreement strengthens the company's balance sheet, allowing it to obtain technical documents that may help it gain an advantage in intellectual property lawsuits with major tech companies, and opens up possibilities for reaching more settlement agreements in the future. Additionally, the agreement creates a sustainable source of licensing income. Despite a significant rise in stock price, the company's valuation still appears relatively moderate. I expect NLST to achieve a net profit of $165 million in FY 2027. Assuming the storage market remains tight, this number is close to the operating level the company may reach in the coming years.

The accelerated AI applications are tightening industry supply relative to demand, resulting in widespread price increases. We currently expect this supply-demand relationship to persist until new industry foundry capacities start to come online, which could happen as early as 2028. — NLST Q2 2026 SEC Filing

If the company is given a 17 times price-to-earnings ratio (P/E), then the $165 million net profit would support a market capitalization of approximately $2.8 billion. Given the current market capitalization of $2.06 billion, this implies about a 40% upside potential.

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