Raspberry Pi shares slip as AI boom squeezes memory market

Raspberry Pi said FY2025 adjusted EBITDA is expected to be at least $45m (ahead of consensus), with unit shipments of 4.0m in H2 and 7.6m for the full year and net cash of $28m after paying down $22m of supplier payables. Management flagged rapidly rising LPDDR4 DRAM costs and high-density supply limits as vendors divert capacity to AI data centres, and noted mitigation options including qualifying suppliers, reduced-memory variants and potential price increases. Shares fell 7.45% to 268.4p; the company will report full FY2025 results on 31 March 2026.

Analysis

Market structure: AI-driven reallocation of DRAM/LPDDR4 capacity is a clear win for memory suppliers and semicap vendors (pricing power, higher gross margins) and a headwind for low-margin embedded-device OEMs like Raspberry Pi. Raspberry Pi's FY2025 metrics (7.6m units, adj. EBITDA ≥ $45m, $28m net cash) limit immediate distress, but rising LPDDR4 costs and high-density constraints mean unit economics will be tested if cost increases exceed ~5–10% and cannot be passed to customers.

Risk assessment: Near-term (days–weeks) the stock reaction is sentiment-driven; short-term (1–3 months) inventory buffers will be consumed and margin pressure could show in FY2025 results on 31-Mar-2026; long-term (6–18 months) capacity reallocation to AI could keep LPDDR4 tight or trigger capping expansion and then cyclic oversupply. Tail risks include prolonged DRAM price spikes (>>20% QoQ), export-control disruptions (US/China), or single-supplier failures; hidden dependency: Raspberry Pi’s 70% OEM concentration creates counterparty pricing risk if OEMs refuse price pass-through.

Trade implications: Favor long positions in memory and semiconductor-equipment names (e.g., MU, ASML) for 6–12 month horizon to capture margin-led upside, while selectively hedging small-cap embedded hardware exposure (RPI). Use pair trades (long MU, short RPI) to express this bifurcation and implement options (3-month MU calls; RPI put spreads or UK small-tech hedges) to manage timing risk ahead of March results. Entry window: 0–8 weeks; rebalance on DRAM price indices or 31-Mar earnings.

Contrarian angles: The market may be overstating structural damage to Raspberry Pi — net cash, OEM relationships, and inventory buffers reduce bankruptcy risk; a >15% further price drop would likely be an overreaction and buying opportunity. Historical DRAM cycles show sharp upswings then capex-led oversupply in 12–18 months, so size memory longs with disciplined stops (15% trailing) and avoid one-way bets that ignore reversion risk.

Key Decisions for Investors

• Establish a 1–2% long position in LSE:RPI at current levels (~268p) with a hard stop-loss at 230p (≈-15%) and a target of ~350p (+30%) to be reviewed after the FY2025 results on 31-Mar-2026; scale up to 3% only if price falls to ≤240p and management confirms mitigation plans.
• Rotate 3–5% of portfolio into memory/semicap exposure: buy Micron Technology (NASDAQ:MU) 2–3% and ASML Holding (ASML.AS) 1–2% within 2–8 weeks, target +20% on MU over 6–12 months if DRAM tightness persists, use a 15% trailing stop to protect against cyclical reversal.
• Implement a relative-value pair: long MU (2% notional) and short LSE:RPI (1% notional) to hedge market beta while capturing DRAM margin upside vs embedded-hardware margin squeeze; close or rebalance positions within 1 month of 31-Mar-2026 earnings.
• Use options to control risk: buy 3-month at-the-money MU calls sized to 1% portfolio (or equivalent call spreads) to leverage upside; if RPI options are liquid, buy a 3-month put spread on RPI sized to 0.5–1% portfolio as an asymmetric hedge—if illiquid, buy puts on a UK small-cap tech ETF to cover similar exposure.