The technology-heavy Nasdaq-100 index plunged 33% in 2022 in its steepest annual loss since the 2008 global financial crisis. Very few individual stocks managed to end the year in the green, but Axcelis Technologies (ACLS 1.42%) was one of them, with a modest gain of 6%.
The semiconductor services company beat the broader market on the back of a stellar operating performance, and it has carried that into 2023. It just reported its financial results for the first quarter, and it crushed its previous guidance and increased its forecast for the 2023 full year.
Unsurprisingly, Axcelis stock is up 45% year to date, which is more than double the gain of the Nasdaq-100 so far. It's still relatively cheap, and here's why it could soar even higher.
NASDAQ: ACLS
Key Data Points
Axcelis plays a key role in the chip industry
The semiconductor industry is constantly growing in importance. Smartphones and computers aren't the only consumer products fitted with digital capabilities anymore -- cars and even smart refrigerators also require processing power. While Axcelis doesn't produce any chips itself, it makes ion implantation equipment, which is critical to the fabrication process.
Demand for the company's products has never been higher. Semiconductors need to be smaller than ever while also generating more output, so chip makers are always looking for improved manufacturing solutions. Axcelis has shipped 500 of its flagship Purion platforms to customers all over the world so far, who use it to produce everything from memory chips to advanced logic processors.
Last year, Axcelis saw its order backlog soar. It ended 2022 at an all-time high $1.1 billion, and in the first quarter of 2023 it jumped once again to $1.27 billion. That's a substantial revenue pipeline, considering the company is valued at just $3.7 billion as of this writing.
The future looks even brighter for Axcelis. Demand for computer chips continues to grow, especially with the onset of advanced technologies like artificial intelligence, and fabricators can't expand their production capacity without more of the equipment Axcelis provides.
Axcelis crushed its sales guidance in Q1
Axcelis told investors it expected to generate $240 million in revenue in the first quarter of 2023. Instead, it came in at $254 million, an increase of 24.7% year over year. The strong result prompted the company to raise its revenue forecast for the full year from $1 billion to $1.03 billion. Axcelis also grew its earnings per share by 17.2%.
Axcelis' performance is in stark contrast to the quarterly results of some of the largest chip manufacturers in the world right now. Advanced Micro Devices, for example, saw its revenue shrink 9% in Q1, and analysts don't expect to see growth in 2023. It has experienced weak sales from its personal computing products amid the difficult economic climate.
As a services company, Axcelis is somewhat sheltered from weak consumer spending because its customers are buying equipment to expand production capacity for the longer term. They're not necessarily thinking about the next month or the next quarter, especially since Axcelis has such a deep order backlog that could take time to clear.
Axcelis stock is still a great value
Despite its strong performance, Axcelis stock is still cheap. The company has delivered $5.67 in earnings per share over the last four quarters, and based on its current stock price, it trades at a price to earnings (P/E) ratio of about 20.
That's a 25% discount to the Nasdaq-100 index, which trades at a P/E ratio of about 27. That means for all of Axcelis' outperformance, its stock still needs to rise another 34% just to trade in line with the broader technology sector.
Given the company's order backlog is at a record high (and growing), there's little reason to expect its revenue or earnings to slow down anytime soon. With that in mind, investors might want to take this opportunity to buy Axcelis stock hand over fist.
