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Impinj (PI) already has a solid, growing business in providing tracking chips for inventory management. But now the company is expanding the capabilities of its chips to services such as retail self-checkout, loss prevention and anti-counterfeiting. And those opportunities are providing a lift for Impinj stock.

The chipmaker will be showing off those capabilities for current and potential customers at the National Retail Federation's annual conference in the week ahead. The NRF 2023 show runs Jan. 15-17 in New York City.

"Impinj and partners will be showcasing solutions at NRF for a variety of use cases," Chief Executive Chris Diorio told Investor's Business Daily via email.

Those solutions include "cryptographic authentication as well as shrink visibility for loss prevention, automated self-checkout, supply-chain shipment verification, and more," he said.

Seattle-based Impinj makes tiny tracking chips that can connect items to the internet cloud for customers in retail, transportation, logistics and other industries. The company uses a wireless technology called Rain RFID, which stands for radio-frequency identification. The Rain flavor of RFID also derives its name from radio-frequency identification.

"While Rain RFID is currently used by product manufacturers and brand owners for inventory management, omnichannel fulfillment, and delighting shoppers, there is much more it can do," Diorio said.

Retail is a key market for Impinj. About 70% of RFID tracking chips industrywide are used by the retail sector, mostly for apparel, Impinj Chief Financial Officer Cary Baker said at the recent Needham Growth Conference. Further, RFID providers are only reaching about 25% of the retail apparel market now, he says.

Meanwhile, Impinj is focused on category expansion at retail, Baker said. Customer Walmart (WMT) is leading the way by adding RFID chips to general merchandise categories like home goods, toys, batteries, and more, he said.

"Walmart is a visionary player in this space," Baker said.

Late Tuesday, Impinj announced preliminary fourth-quarter sales that topped Wall Street estimates. Impinj stock initially jumped as much as 8.4% on the news Wednesday before retreating. It ended the regular session down 0.6% to 117.50. It will report official results on Feb. 8.

Canaccord Genuity analyst Michael Walkley cheered the news. He reiterated his buy rating on Impinj stock and raised his price target to 140 from 115.

"The preannounced revenue upside supports our positive long-term thesis for sustained growth opportunities for Rain RFID adoption with strong growth potential across retail, supply chain and logistics, auto, aviation, health care and other large markets," he said in a note to clients.

While Impinj sales have been growing at a decent pace, the company has been supply constrained. In fact, demand has exceeded supply by more than 50% for six consecutive quarters, the company said in its third-quarter report last October.

On Oct. 27, Impinj stock broke out of a 10-week consolidation period at a buy point of 99.10 after that third-quarter report, according to IBD MarketSmith charts. It notched an all-time high 129.02 on Dec. 2 as it surged out of the 20% to 25% profit-taking zone.

The company's supply of endpoint integrated circuits, or tracking chips, has been hampered by capacity constraints at its semiconductor foundry partner.

Meanwhile, its systems business, which includes wireless chip readers and other gear, has been held back by component shortages. Impinj gets about 75% of its revenue from the sale of RFID chips and 25% from systems.

In addition to tracking and managing inventory, retailers can use Impinj chips for automated self-checkout. With those systems, customers can instantly ring up a basket of items all at once. Those systems also turn off security tags after a purchase and turn them back on if a product is returned.

In September, the company launched a solution to verify that goods are legitimate. Impinj Authenticity cryptographically authenticates items such as retail merchandise, automotive parts and medications to help prevent counterfeits, ensure product safety, and secure the supply chain. The offering gives Impinj a recurring revenue opportunity from endpoint chips to cloud services.

Impinj executives believe the market opportunity for RFID chips is massive and less than 1% penetrated. The next sizable market after retail to adopt RFID chips likely will be the supply chain and logistics industry, Baker says.

Impinj stock is on IBD's Leaderboard list and Tech Leaders list.

Further, Piper Sandler analyst Harsh Kumar named Impinj stock as his top pick among small-cap semiconductor stocks for 2023.

Impinj competes with NXP Semiconductors (NXPI) and Zebra Technologies (ZBRA). But neither of those two companies can offer customers a complete solution, Impinj executives say.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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