InterDigital, Inc (IDCC US)
An Asset-Light Toll Road Play for Wireless, Video, and Artificial Intelligence
Disclaimer: Below is a summary only. Full thesis on PDF.
Long (PT: $700)
The AI Efficiency Enabler
The AI race is fascinating in that it is playing out in multiple directions, simultaneously. But not every axis of the trend receives equal investor attention at any one moment. First-order beneficiaries—such as CapEx winners—now appear priced for perfection, while less obvious AI enablers may stay attractively priced, lacking in investor attention, until a catalyst forces a sudden rerate. For investors, opportunity lies in identifying stocks which will benefit when the money and attention following “the AI trade” flows in a sudden new direction.
This played out most recently in memory names like Seagate, SanDisk, or SK Hynix. The release of generative AI video and image models like Sora and Nano Banana highlighted a once unthinkable data storage shortfall, leading to massive inflows into memory providers, which suddenly appear to be entering an upcycle.
DRAM Spot Prices
Against a backdrop of surging energy prices, lengthening sourcing lead times, and rising storage costs, we believe a similar revaluation will occur in the first half of 2026 with “AI efficiency enablers,” and, specifically, InterDigital, Inc. (“IDCC”).
Andreessen Horowitz AI Infrastructure GP
We argue that the market will soon recognize the immense value of IDCC’s technologies, who are major contributors to some of the most important digital standards such as Wi-Fi. Not only are their patents guarantors of interoperability as well as reliably, but their work enable greater efficiency in producing, transmitting, and streaming of digital data. In many verticals—such as streaming—avoiding IDCC’s technologies would render operations at best uneconomical and at worst outright impossible.
IDCC 2024 CMD Materials
The Untapped SCS Opportunity - The Disney Catalyst and Legal Momentum
The crux of our thesis lies in the monetization of IDCC’s Streaming & Cloud Services (“SCS”) division, a revenue stream that is so far still completely untapped. IDCC’s industry-standard video compression codecs (HEVC, VVC) are essential for mitigating the escalating memory and energy demands of 4K/8K streaming, immersive AR/VR media, and the rapidly expanding generative AI video ecosystem. By 2026, the SCS opportunity is likely to surpass the size of IDCC’s current smartphone licensing market, offering a clear path to materially higher recurring revenues.
Company-Disclosed End Market Characteristics
We believe that upcoming litigation with Disney will be the catalyst which forces the market to understand the SCS opportunity, and, therefore, reassess the substantial current undervaluation of IDCC. In our view, the market underestimates both the probability and potential impact of litigation success against Disney. A favourable outcome—consistent with historical precedent—would likely prompt major streaming platforms (Netflix, YouTube, etc.) to follow suit in licensing IDCC’s technologies.
We are confident because of two key factors:
1. Demonstrated Success: IDCC has already shown the strength of its monetization model by securing licensing agreements with roughly 85% of global smartphone vendors. Its cellular patent portfolio (3G, 4G, 5G) currently drives approximately $475 million in Annual Recurring Revenue (ARR). This record—grounded in legal transparency and binding arbitration—serves as a template for SCS growth.
Media Coverage of the DOJ Statement of Interest
2. Accelerating Legal Momentum: Recent legal victories across multiple jurisdictions, including an injunction in Brazil, a DOJ statement of interest in their favour, and the world’s first Anti-Interim-License Injunctions (“AILI”) in Germany and the Unified Patent Court (UPC), are material tailwinds. We expect a win against Disney to be IDCC’s next “Apple moment”—similar to 2016, when its Smartphone business gained credibility and momentum after securing Apple as a licensee. A victory against Disney would validate management’s SCS monetization strategy and likely catalyse a major valuation re-rating.
Exhibit 16 – Valuation Framework
What stands out here, is that the company does not provide “nice-to-have”, easy to replicate technological solutions. Instead it licenses “must-have”, mission-critical, industry-defining patents for all things Wireless, Video, and AI. This encompasses Smartphones themselves, as well as Internet of Things (“IoT”), Autos and the various levels of autonomous driving, and most importantly now encoding/decoding of online content for AI.
A strong net cash balance sheet, with a steady buyback program which we think should level at around 3-5% of the company shares outstanding, complements a business that display some of the most attractive set of financials we have ever seen: HSD topline growth on highly stable, predictable revenues streams, no COGS, 60%+ adj. EBITDA margins, 100% cash conversion, 60%+ ROCE…all currently trading for 23x 26E P/E.
We believe the Disney litigation will prove to be another inflection point in the IDCC story at some point in 2026. One that will take the company from a relative unknown to soon to be “too big to ignore” by the market.
We see the stock as having nearly 75% upside in the next 12 months.