What happened
Shares of Aehr Test Systems (AEHR 4.97%) rallied again this week, rising 13.3% through Thursday trading at 1:38 p.m. ET, according to data provided by S&P Global Market Intelligence.
Aehr is a small company, but it's showing big-time growth. The company makes test and burn-in semiconductor equipment for silicon carbide chips, and silicon carbide is all the rage these days. That's because this material is especially useful for power semiconductors that operate at either high temperatures or voltages. Thus, silicon carbide is taking off as the electric vehicle (EV) industry begins its exponential growth curve.
This week, Aehr announced a new customer win and continued riding the momentum of a big analyst upgrade from late last week.
NASDAQ: AEHR
Key Data Points
So what
On Friday of last week, analyst Christian Schwab at Craig-Hallum raised the price target on Aehr from $31 to $45. The near-50% increase in Schwab's price target came after Aehr had announced it had received a $25 million order from its largest existing customer, which Schwab believes is On Semiconductor. Schwab also stated he thought other leading semiconductor companies in the automotive power vertical would also increase purchases of Aehr equipment in the near future.
That turned out to be a good call. This week, Aehr announced it had received another order from an unnamed new customer, which selected Aehr's FOX-PTM test and burn-in system for its next-generation silicon carbide products in EVs. CEO Gayn Erickson said in the release:
We are very excited to announce another new customer that has selected our FOX solution to test and burn-in their silicon carbide devices. ... Forecasts from William Blair estimate that the silicon carbide market for devices in electric vehicles alone, such as traction inverters and on-board chargers, is expected to grow from 119,000 6-inch equivalent silicon carbide wafers for electric vehicles in 2021 to more than 4.1 million 6-inch equivalent wafers in 2030, representing a compound annual growth rate (CAGR) of 48.4%. This equates to almost 35 times larger in 2030 than in 2021.
If those growth projections pan out, Aehr looks to be in quite an advantageous position, perhaps justifying its expensive-looking 77 P/E ratio.
AEHR Year to Date Total Returns (Daily) data by YCharts
Now what
Aehr has been a tremendous winner already in 2023, up 80% year to date. Trading at a rather high valuation, it is a little bit difficult to recommend chasing shares at this moment.
Still, should Aehr be able to maintain its competitive position within the silicon carbide market, it certainly seems like there is a massive growth opportunity for Aehr that could last a decade.
Currently, Aehr believes its advanced FOX-XP system offers a significant competitive advantage over competitors, with the ability to process 18 wafers in the same footprint as its competitors' single-wafer system. However, given that large a market opportunity, investors should also expect competition to enter the SiC test and burn-in market over time. Aehr remains an exciting growth stock for small-cap investors to research today.
