AI And IoT Integration Will Expand Global Technology Markets

Key Takeaways

• Accelerated AI integration and expansion into diverse IoT categories are driving greater platform engagement, supporting revenue growth and increased business diversification.
  
• Shifting toward higher-margin SaaS and value-added services, alongside successful international expansion, is boosting earnings quality and stabilizing Tuya's revenue base.
  
• Tuya's profitability and growth are threatened by supply chain challenges, cost pressures, rising competition, and regulatory risks that increase revenue and margin volatility.

Catalysts

Provides AI cloud platform services in the People’s Republic of China and internationally.

• Accelerating integration of AI capabilities in nearly all shipped product categories and robust developer engagement signal Tuya's ability to capitalize on the shift toward autonomous, intelligent IoT devices, likely supporting higher revenue growth, increased platform stickiness, and margin expansion as AI solutions become core to customer offerings.
  
• The continued global proliferation of IoT devices-evidenced by strong growth in developer numbers, cross-category AI adoption, and expansion into new product verticals (such as AI energy solutions, toys, and pet care)-positions Tuya to benefit from expanding end markets, which should drive sustained top-line growth and increased diversification of revenue streams.
  
• Ongoing expansion of SaaS and value-added services, with SaaS segment revenue growing at a faster rate than PaaS and achieving over 70% gross margin, is structurally shifting Tuya's business model toward higher-margin, recurring revenue, supporting long-term gross margin improvement and greater earnings visibility.
  
• Increasing international traction, particularly in Europe and Asia Pacific, combined with resilience against global trade uncertainties and progress in localizing solutions for niche markets (e.g., energy-saving appliances, telecom, real estate), diversifies Tuya's customer base and mitigates concentration risk, likely contributing to more stable revenue growth and improved earnings quality.
  
• Growing network effects from Tuya's developer ecosystem-reflected in frequent hackathons, open-source contributions, and commercialization of developer-driven products-enhances platform competitiveness, fosters customer retention, and increases the potential for scalable, profitable innovation, which should support operating leverage and net margin expansion over time.

Tuya Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tuya's revenue will grow by 11.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.3% today to 17.3% in 3 years time.
• Analysts expect earnings to reach $75.6 million (and earnings per share of $0.13) by about August 2028, up from $19.6 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $96 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 40.8x on those 2028 earnings, down from 81.1x today. This future PE is greater than the current PE for the US Software industry at 35.0x.
• Analysts expect the number of shares outstanding to grow by 6.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.13%, as per the Simply Wall St company report.

Tuya Future Earnings Per Share Growth

Risks

• Tuya faces significant revenue and margin risks from ongoing global trade uncertainties, U.S. tariff policies, and protracted supply chain disruptions, which have already resulted in cautious and delayed purchasing behavior across retailers, brands, and manufacturers in key international markets.
  
• The company's heavy reliance on cost-sensitive hardware categories exposes it to commoditization pressures, as seen in declining gross margins for some solution segments and customer shifts toward entry-level products, potentially depressing long-term revenue growth and operating leverage.
  
• Shifting manufacturing supply chains away from China due to geopolitical and tariff concerns increases logistics complexity and costs, which could pressure Tuya's profitability and materially impact net margins if relocation difficulties and pricing negotiations persist.
  
• Intensifying competition in the global IoT and AIoT sector-from both hyperscalers and other IoT platform players-threatens Tuya's pricing power and ability to differentiate, potentially leading to margin compression and slower customer acquisition, which could adversely affect revenue and net earnings.
  
• Persistent dependence on international expansion amid heightened regulatory scrutiny, data privacy concerns, and unfavorable macroeconomic cycles, especially in China, could expose Tuya to unpredictable revenue volatility and weaken its net margin stability over time.

Valuation

• The analysts have a consensus price target of $3.278 for Tuya based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $436.7 million, earnings will come to $75.6 million, and it would be trading on a PE ratio of 40.8x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of $2.64, the analyst price target of $3.28 is 19.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.