Aehr Stock: Silicon Carbide Chips Providing Sales Surge

Electric vehicles are driving big revenue growth for Aehr Test Systems (AEHR). And Aehr stock is in rarefied air after its latest earnings report.

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The Fremont, Calif.-based company makes semiconductor test and reliability qualification equipment. Its biggest growth comes from systems for test and burn-in of silicon carbide, or SiC, power chips for EVs. Burn-in is a stress test of a component to detect problems.

Two of the top four makers of silicon carbide chips are Aehr customers and a third SiC company is currently testing its gear. The only identified customer has been Onsemi (ON), also known as ON Semiconductor.

“Our momentum in silicon carbide wafer-level test and burn-in continues to grow,” Chief Executive Gayn Erickson said on a Jan. 5 conference call with analysts. “We see this momentum continuing for the next several years as companies are adding significant capacity in silicon carbide semiconductors to address the incredible forecasted demand, particularly for the electric-vehicle and electric-vehicle charger markets.”

Rapid Growth Predicted For SiC Chips

In addition to electric vehicles, silicon carbide chips are likely to see growing adoption in markets such as industrial, solar, wind and electrification infrastructure. The reason is that silicon carbide semiconductors can operate at much higher voltages, temperatures and frequencies than traditional silicon-based semiconductors.

Research firm Yole predicts sales of SiC chips will grow from $1.1 billion in 2022 to $6.3 billion in 2027. Automotive applications will rise from 63% of the SiC chip market to 79% during that time frame. Energy, industrial and transportation are other big users of SiC chips, it says.

Aehr’s newest systems are automated and designed for high-volume production, which is something customers greatly appreciate, Erickson says.

Meanwhile, adoption of electric vehicles is accelerating. Last year, EVs made up 10% of new-car sales worldwide, thanks to growth in China and Europe. In the U.S., EVs accounted for 5.8% of auto sales in 2022, the Wall Street Journal reported.

Aehr Stock Rockets On Earnings Report

Earlier this month, Aehr reported better-than-expected results for its fiscal second quarter ended Nov. 30. It earned an adjusted 16 cents a share on sales of $14.8 million. On a year-over-year basis, earnings rose 220% as sales climbed 54%. Aehr stock surged over 32% on Jan. 6, the first day of trading after the report.

William Blair analyst Jed Dorsheimer said he was encouraged by Aehr’s earnings report.

“We reiterate our outperform rating (on Aehr) as customer engagement momentum continues at a crucial inflection point in the SiC industry while major players execute capacity expansion plans,” he said in a note to clients.

Aehr stock vaulted 14.8% on Friday to close at 31.90.

‘Volatile Name For Investors’

On Oct. 20, Aehr stock broke out of an eight-week consolidation period at a buy point of 19.53, according to IBD MarketSmith charts. But it had difficulty holding on to its gains in the weeks that followed.

On Jan. 10, Aehr stock hit another buy point. It popped out of a V-shape cup base at a buy point of 28.10, MarketSmith charts show. It notched an all-time high of 30.79 on Jan. 18.

In a positive sign, Aehr stock’s relative strength line is at new highs as it outperforms the S&P 500 index.

“Aehr has been a volatile name for investors,” Dorsheimer said. “We expect this name to remain volatile, but our focus lies on the fundamentals and the long-term opportunity.”

He added, “As Aehr’s solution grows from the tool of record at one customer to multiple customers, we expect continued upside in the stock.”

Momentum Likely To Continue

Aehr’s chief executive sees the good times continuing.

“Looking ahead, we continue to believe that we will receive production orders from additional silicon carbide companies beyond our current customers and begin shipping systems to meet their production capacity by the end of our current fiscal year that ends May 31,” Erickson said. “We are very optimistic for a strong second half of this fiscal year and believe the momentum will continue into our fiscal 2024.”

The company also is having discussions with makers of gallium nitride semiconductors, Erickson says. Both silicon carbide and gallium nitride chips address the high-voltage power semiconductor markets, including electric vehicles.

In addition to gear for silicon carbide chips, Aehr makes equipment for testing and qualifying silicon photonics, sensing devices, memory and other semiconductors.

Aehr Stock Has High Composite Rating

For the current fiscal year, Aehr has forecast revenue of $60 million to $70 million, with profit margins similar to last fiscal year.

Analysts polled by FactSet are modeling Aehr earnings of 60 cents a share on sales of $65.2 million. That would translate to year-over-year growth of 43% in earnings and 28% in sales.

Aehr stock is tied for second place with two other companies in IBD’s semiconductor equipment industry group, according to IBD Stock Checkup. The group includes 29 stocks. Aehr stock has an IBD Composite Rating of 98 out of 99.

IBD’s Composite Rating is a blend of key fundamental and technical metrics to help investors gauge a stock’s strengths. The best growth stocks have a Composite Rating of 90 or better.

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

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