Money Mag Reference:
Our last pick is pretty clearly the riskiest. Rambus, which designs technology that let microprocessors and memory chips exchange information more quickly, has the smallest revenue base ,
$40 million, and the highest projected long-term - annual earnings growth rate, 75%. So the analysts who follow the company have high expectations. That means Rambus could increase earnings 60% next year and the stock could still get hammered.
But Rambus also has the lowest PEG ratio, just 0.6. So the stock should move if the company hits Wall Street's high growth targets. There are good reasons to think Rambus can.
Rambus tackles a critical PC problem. The speed of the micropro- cessor-your computer's brain-has increased tenfold since 1994, but the speed of memory chips hasn't kept pace. That imbalance is severely limiting the performance of new high-end PCs. Your computer can think fast enough to process complex data such as multimedia software, but it must pause repeatedly as it presents it to you.
Enter Rambus. The Mountain View, Calif. firm got its first big design win in 1995, when Nintendo adopted its technology for the N64 game console, the company went public in 1997. Since then, Intel has adopted a Rambus design for PCs, and manufacturers that account for more than 95% of memory-chip production have made commitments to the company. That's why analysts are projecting such lofty earnings growth. Briefly above $100 a share earlier this year, Rambus stock fell when Intel delayed its rollout plans for chips using Rambus designs. At a developers forum in February, however, Intel said it would launch such chips in the fall. Compaq and Dell have said they will use the technology too. Ram- bus recently traded at $62, or 42 times 2000 earn- ings. Again-not cheap, and you can see the kinds of short-term swings the stock can face. But the company has the right clients. And unlike that Internet IP0 your neighbor has been telling you about, Rambus has a product that can't be cloned by a couple of guys in a garage.
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