What happened
Red-hot chip equipment stock Aehr Test Systems (AEHR -1.17%) rose another 33.4% in the month of May, according to data from S&P Global Market Intelligence.
Aehr makes wafer-level test and burn-in equipment, which chipmakers use to conduct "stress tests" of chips at the wafer level, before the chips are separated and packaged into complete systems. Aehr's machines appear to be finding favor with makers of various types of semiconductor manufacturers, from silicon carbide (SiC) power chips, to memory, microcontrollers, optoelectronics, and more.
Given the explosion of demand for specialty chips, especially in auto and industrial applications, Aehr has seen booming growth this year.
So what
In May, Aehr added to its positive streak. On May 9, the company issued a press release detailing a new customer win for its new high-power FOX-XP system for high-volume silicon photonics production, from "one of the world's largest semiconductor manufacturers."
Although the customer was already an existing customer, management seemed excited, as the new order validated Aehr's most advanced configuration of the FOX system. CEO Gayn Erickson elaborated, "This new FOX production system configuration expands the market opportunities of the FOX-XP system, as it's able to test, burn-in, and stabilize up to nine 300mm wafers in parallel with up to 3.5 kW of power per wafer, which is beyond the wafer parallelism and power capacity of any system on the market."
Erickson went on to explain that there could be big-time growth ahead for this new tool configuration, as chipmakers are now closely integrating silicon photonics into multichip packages to boost the communication bandwidth in between high-performance systems. Since bandwidth throughput will be a key in high-performance computing systems, these types of compound chips using silicon photonics are likely to be increasingly developed for artificial intelligence (AI) applications. And as the investing world knows now, AI-related chips should see big-time growth ahead.
On the subject of AI, toward the end of May, GPU leader Nvidia reported earnings and gave blowout guidance for the current quarter, lifting not only its own stock, but basically every semiconductor stock that plays a role in AI systems. Likely, that spurred incremental enthusiasm for Aehr toward the end of the month.
AEHR Year to Date Total Returns (Daily) data by YCharts
Now what
Not only did Aehr have a great May, but the stock continued rising in June after the company announced a large new customer win for the production of silicon carbide chips, rising another 17% that day.
After its exciting announcements and those of its semiconductor peers, Aehr is now up a whopping 111% on the year.
Now trading at 85 times earnings and 40 times next year's estimates, the stock certainly seems expensive. On the other hand, one could have said Aehr seemed expensive throughout this run higher. And in fairness, its equipment seems to be the go-to solution for wafer test and burn-in across a variety of high-growth segments. Therefore, it's a name to watch for growth investors, and should be considered on any near-term pullbacks.
