What happened
Shares of Aehr Test Systems (AEHR +2.99%) were up 23.9% today as of 3 p.m. ET. It's a massive jump for the tiny semiconductor industry participant (with a current market cap of just $300 million). Shares are up 600% in the last three-year stretch as its testing equipment for wafer-level hardware is in high demand, especially from the electric vehicle (EV) market. The latest earnings report, from yesterday evening, illustrates this.
So what
Aehr reported revenue of $20.3 million during the fiscal fourth quarter of 2022 (the three months ended May 31). That was a massive 166% year-over-year increase from just $7.6 million a year ago. Even better, adjusted earnings per share skyrocketed from $0.04 last year to $0.23 this last quarter. Huzzah!
During the complex manufacturing process, semiconductors undergo multiple tests to ensure they will operate properly. Aehr is a developer of one type of equipment -- machines that test semiconductor wafers (the silicon that circuitry is later built on top of). This level of testing is particularly important for EVs, since failure of devices could cause the vehicle and battery system to be completely inoperable.
This is the market that has Aehr booming right now, as its new systems for testing these critical components are in high demand among automakers.
Now what
Aehr cites research from Canaccord Genuity that predicts wafer-production capacity will go from 150,000 six-inch wafers in 2021 to over four million six-inch equivalent wafers in 2030 -- all from the EV market alone. Production capacity isn't an exact measure for what actual production will be, but suffice it to say the outlook for equipment Aehr manufactures is sky-high.
Aehr said to expect fiscal 2023 sales to be in a range of $60 million to $70 million, implying growth of 18% to 38% over the just-completed fiscal year. Management also said profit margins should be similar to those of 2022 (operating profit margin was 15.3% in the last year).
At this point, Aehr stock is trading for 27 times adjusted earnings per share. It's a premium price tag. However, if this little chip-equipment outfit can ride the EV trend over the next decade, it's worth a close look for investors with a long time horizon who don't mind highly volatile stock prices.
