Shares of semiconductor testing company Aehr Test Systems (AEHR +1.98%) rallied 30.6% this week through Friday at 2:33 p.m. EDT, according to data from S&P Global Market Intelligence.
Aehr didn't report any financial results this week, but it did announce an order for its wafer test and burn-in machines from a new customer. This customer is also innovating in silicon photonics, a new networking technology that many believe will displace copper in AI data centers.
Needless to say, the announcement fueled a stock price uptick.
NASDAQ: AEHR
Key Data Points
Aehr is a high-risk investment, but with tantalizing upside
Aehr is a small-cap tech stock with a market capitalization of just $1.2 billion, which means significant orders can make a big difference in its financial results.
Now, this cuts both ways. Aehr produces wafer-burn-in testing equipment that simulates high-voltage, high-heat conditions for semiconductors while they are still on the wafer. That enables companies to test a chip's resiliency before it's packaged into a final product.
Aehr found its first major demand driver in chips for electric vehicles, as EV power chips need to operate at very high voltages and in rugged conditions. However, as the EV revolution stalled over the past few years, Aehr's revenue fell.
However, Aehr may have a next act: AI processors. AI chips also must operate at high voltages for long periods of time to execute AI training and inference, and Aehr has found new customers among unnamed AI chip companies.
On Tuesday of this week, Aehr announced that it had received orders from a new customer, a silicon photonics producer.
Silicon photonics is seen as the future of AI data center interconnects, as traditional copper interconnects face thermal constraints in the high-power, high-heat environment next-generation AI data centers require. Given that silicon photonics must operate in this high-power, high-heat environment, it appears these companies are turning to Aehr's burn-in testing systems.
Aehr disclosed that the order includes multiple systems and products, which are expected to ship in the current quarter that ends at the end of May. CEO Gayn Erickson stated in the release:
Silicon photonics-based optical transceivers are a critical enabling technology for this transformation, and we believe this order is particularly significant because it comes from a major new customer, a leading supplier of networking products and solutions for the data center market... What makes this win especially exciting is that the customer is purchasing systems for both engineering qualification and high-volume production up front, reflecting the urgency of the ramp now underway to support the massive build-out of hyperscale AI and cloud data centers.
Image source: Getty Images.
Aehr is a boom-or-bust bet on adoption of its technology
It should be noted that although Aehr is a small company, it doesn't trade at a "cheap" valuation. In fact, revenue fell year over year last quarter and profits were negative, as the recent AI chip wins haven't yet offset the declines in EV power chip customers.
Aehr did guide for sequential growth in the second half of its fiscal year relative to the prior six months, but the guided sequential growth was fairly modest. However, it's possible the new silicon photonics order wasn't included in the guidance given back in January.
In any case, the announcements for new AI-oriented processors and networking chips have investors excited about the longer-term picture, given the hyper-growth of the AI infrastructure build-out. But investors should also be aware that the stock is already pricing in at least some of that growth already.
