ENVX is a high-risk small bet with upside from new battery chemistry; plan to increase position size.

Let's do Enovix. In this case, we're looking at specialty energy and equipment with Enovix. Enovix is working on silicon anode lithium-ion batteries, and we'll show you a little bit more about the chemistry of this.

The anodes in this case use silicon instead of graphite to increase energy density and increase charging speed. And a number of them have sold off pretty hard in the last month, especially Enovix, which is down to its all-time low.

It's gone downhill pretty fast, and before all this, we locked in some good gains when we bought Enovix. Last year sometime. So we locked in those gains, but then started buying it back, and since that point, it's not been doing a whole lot.

So at this point we're interested in maybe increasing the size a little bit more, or at the very least back to where it was when we repurchased again. We'll get to the Q2 2026 earnings report in just a moment, because Wall Street was a little bit unhappy with some things that were talked about in Q2 and the Q2 update.

But then subsequent to that, the CEO, Dr. Raj Talluri, very abruptly announced his departure, and then it came out just two days ago that it was actually Kulicke & Soffa, the advanced packaging and semiconductor packaging equipment provider, that actually poached him away.

That leads to the question, if Enovix is getting to a point where they can commercialize, or ramp up the commercialization of this advanced battery technology, why would the CEO leave?

You'll see the Enovix financials in just a moment, but they do at this point less than 10 million in sales each quarter.

This is a cross-section of Enovix's battery technology.

And then right next to it in the dark gray there is the actual anode, the silicon anode that Enovix has been trying to innovate, and they've been working on this chemistry now for over a decade.

On the left, when they originally started making these anodes, it was just silicon. Just diced sections of a raw silicon wafer. And because silicon is crystal, when you have the lithium ions moving from the cathode into the anode, it was as few as 10 cycles the lithium would get in there into these fissures and cause cracks and destroy the anode in as few as 10 charge cycles.

Over the course of a number of years, they developed that chemistry into silicon oxide, there in the middle, and they were able to get it up to 500 cycles, 500 charges before the lithium would kind of wiggle its way in there and start to cause fissures and cracks and destroy the anode.

But the big thing that Rogers wanted everybody to know that he felt everybody skipped during the Q2 earnings update was they actually got this new chemistry, this silicon carbon composite with enough places for the lithium to kind of go in during the energy transfer process, that it doesn't destroy the anode anymore, and they got it up to 1,000 cycles. That's now a useful device.

And their potential smartphone commercial customer is probably the Honor smartphone company in China, is nearing the end of product verification and qualification. They have another one that's also qualifying, that could potentially enter commercialization next year, and they're actually in commercialization of these batteries right now for a smart glasses company.

We are now at the stage where Enovix needs to scale up its fabrication of these batteries. So now we're at ramp-up phase. Right, and they have some facilities. Fremont, Penang, and then South Korea for additional manufacturing assembly.

The revenue base is still very, very small. $9 million in Q2 2026. Gross margin, terrible. We've talked about this before. A 40% gross margin for a manufacturing business is a key target.

And this is on an adjusted basis. They're still a long ways off. Only have $550-ish million on the balance sheet.

So they don't have the capacity yet to meet the orders that you see on the right, the smartphones, smart eyewear, and this growing interest for drones as well. They have a 50,000-pack order for the smart glasses.

So all of this to say they don't have the capacity to meet this. They're gonna have to start building more manufacturing capacity. If you look at the financials and you start thinking, "Okay, now they have to spend all this money.

What's gonna happen? What does that mean exactly?" We have a well-established analogy. Only fast cars in technology. But what does that practically mean, though? Okay. So it's like a gas tank.

If you're not moving, you're idling and you're using up gas, and that's kind of what's going on right now with Enovix. They're not replenishing that gas. They're just idling. And when you're pre-revenue in R&D, you can kind of idle for a long time.

And they have been. But eventually you're gonna need to stomp on the gas, use up some of that gas in the gas tank, and the question is, do you have enough to get to a cruising speed, and use that gas efficiently?

Can they get to manufacturing capacity, build out all of the infrastructure that's required, ship all of their promised batteries out? Do they have enough gas in the gas tank?

Or in even simpler terms, as Elon Musk famously said, Production hell. Was it production hell? That period where you have orders coming in, you know there's demand, but you need to build the manufacturing capacity first.

That's the period where it's like a drag race. And then cruising speed would be, okay, there's enough capacity online, there's enough manufacturing online that we're self-sustaining.

The fuel efficiency of the vehicle, of the business is good, and we don't have to borrow money.

And essentially, the first shoe to drop was Q2. Super exciting. Enovix is now at that point where it's no longer R&D phase. They have real orders. They have real commercialization of products that they can sell to potentially the smartphone industry, smart glasses, and aerospace and defense via drones.

But oh my God! Yeah, the revenue's only 9.5 at the midpoint for the next quarter guidance, and capital expenditures are more than that at the midpoint. 10 million at the midpoint, but nothing's cheap. It'll be 12. It very much may be 12.

And so the market is looking at this thinking, "Okay, now it just got real." All this time we've been waiting in idle mode for R&D. We're stomping on the gas now, and in true market fashion, someone always freaks out and says, "Oh, what if we don't have enough cash until we get to scale up?"

The initial revenue guidance is a little bit light, and oh, by the way, then the CEO just left. That was the second shoe to drop. Right in the midst of all this, the market was like a little bit worried, and then Dr. Raj leaves.

Enovix now has this distraction of having to go find a new permanent CEO. And, TJ Rogers is out there defending both his early investment in Enovix as well as the future potential of the company.

And so do they have enough cash to get there? This is the race against the clock. This is the fast car race to capture this new market in next gen battery technology, silicon-based anode battery technology.

They've got cash in equivalence, $476 million, an additional $74 million in longer term investments. Most of that is US treasury investments and other bond investments. When you add in the R&D expenses plus the higher CapEx to buy equipment and expand the fabs in Fremont and Penang, Malaysia, they're gonna be burning, let's say about $20 million to $30 million a quarter.

Do you get the sense of the problem now? The $476 million in cash in the course of just a year or two could be significantly reduced, and the business' operations are still in scale up mode at that point, and now you have to talk about doing another cash raise event, either via more debt, they already have debt of over $520 million on balance, selling more stock.

This is the worry that is now going on. Why would we buy something like this? This sounds like a piece of garbage. We are not supporting a good strong bull thesis here. We wanna start with the bad news, though.

Yeah. And we did. But the good news is they've made a ton of progress. They actually have made a significant amount of project, and I think we're both willing to bet that Mr. Rogers can pull this off to some extent, or at least, that they'll stabilize and get their manufacturing capacity where they need to, and be able to ship orders and rake in that revenue.

But this is a small bet. Very small bet for us. And high risk. Potentially really big high reward, though. Especially now that the company's trading at a 600 million market cap roughly.

And on an enterprise value basis, it's gonna decrease from there because the cash balance is going to dwindle away until they reach free cash flow breakeven.

So it's an interesting story. It's always interesting when the market will hype up these pre-revenue R&D businesses, and then occasionally, when one of those businesses succeeds and is like, "Hey, we have a product that we can sell.

We need to spend money," and then everybody freaks out.

So we're gonna allocate a bit more to this small bet, and we'll check back in in 2027, probably early 2027. So we'll have to reevaluate next year. But until then, we're gonna allocate a bit more and wait and see.