The semiconductor industry has been a focus point for investors this year as demand surges for advanced chips used in data centers to train artificial intelligence (AI) models. Shares of Nvidia have soared 217% for 2023 (so far) thanks to the company's dominant position in the space.
But the opportunities in the chip industry are broad, so investors might do well to look at stocks that are flying under their radar. Axcelis Technologies (ACLS 3.06%) is one of them; its stock has jumped 131% year to date, yet it's still in tune with the broader market, and significantly cheaper than widely held names like Nvidia.
The company just reported its financial results for the second quarter of 2023 (ended June 30). It beat its prior revenue and earnings forecasts, and lifted its full-year guidance yet again. Here's why investors should consider buying in right now.
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Demand is surging for Axcelis' products
Axcelis Technologies doesn't produce any chips itself, but rather builds ion implantation equipment that is critical to the fabrication process. Manufacturers of semiconductors in multiple segments need that equipment, especially when it's time to expand their capacity. Axcelis' customers span across producers of advanced logic (CPUs) chips, memory (DRAM) chips, and storage (NAND) chips.
In Q2, the company told investors it's seeing the most strength in the silicon carbide power device market. That includes semiconductors used for automotive purposes, and it's partially driven by consumers' shift to electric vehicles. Silicon carbide is a growing alternative to typical silicon-based electronics because it makes them more efficient, lighter, and smaller.
Axcelis is the only ion implant company capable of delivering full recipe coverage for all power device applications, which gives customers the most optimal configurations for high-volume manufacturing.
However, Axcelis said activity was also growing in the AI space, particularly from customers producing memory chips. Overall, Axcelis ended Q2 with an order backlog worth more than $1.2 billion, which represents more than 12 months' worth of revenue in the pipeline.
Axcelis increased its 2023 revenue forecast (again)
Axcelis generated $274 million in revenue during the second quarter of 2023. Not only was that a 23.8% increase compared to the year-ago period, but it was also comfortably above the company's guidance of $260 million.
Thanks to the strong Q2 result, Axcelis increased its revenue forecast for the 2023 full year by $70 million to $1.1 billion. It's the second time the company has upped the number this year. It would represent 20% growth compared to 2022, during a year when the wafer fabrication equipment market is expected to shrink by as much as 30%. It implies Axcelis is snatching market share from its competitors mainly due to the versatility of its flagship Purion systems.
Plus Axcelis' Q2 earnings per share came in at $1.86, up a whopping 41% year over year and also above its prior guidance. The company is benefiting from increased scale and careful expense management, which resulted in a higher gross profit margin of 43.7% in Q2, compared to 40.9% in Q2 last year. As a result, more money is flowing to its bottom line.
Axcelis stock has surged in 2023, but it's still a buy
Axcelis stock has surged by 131% in 2023, which is triple the return of the Nasdaq-100 technology index, yet it's still incredibly cheap.
Based on the company's $6.21 in trailing 12-month earnings per share and its current stock price of $180, it trades at a price to earnings (P/E) ratio of 32. That's in tune with the Nasdaq-100, which also trades at a P/E of 32.
It's also substantially cheaper than leading chip stock Nvidia, which trades at a very high P/E of 204. As I mentioned earlier, Nvidia has been the poster child of the semiconductor industry this year, and it's delivering the growth to back it up. But paying such a high valuation does present more risk than might be expected in stocks like Axcelis.
Here's the best part: Axcelis' strong run likely isn't over. The company expects its revenue to grow to $1.3 billion annually over the next year or two, thanks to consumer segments like personal computing and electronics bouncing back from 2024 onwards. Plus, with a substantial order backlog of over $1.2 billion, Axcelis has plenty of work in the pipeline going forward.
As a result, now might be a great opportunity for investors to buy Axcelis stock while it's still relatively cheap.
