In its recently reported fiscal 2026 third quarter, Alpha and Omega Semiconductor's (AOSL +2.02%) revenues declined slightly year over year, which doesn't sound good on the face of it. But the stock has more than doubled so far this year as investors have come to recognize Alpha and Omega Semiconductor's growing influence in the AI sphere, which could translate into meaningful future growth.
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Hyperscalers are paying attention
Alpha and Omega Semiconductor specializes in power management devices and semiconductors. Most of its revenue comes from low-margin segments like PCs, laptops, and smartphones. Investors aren't too excited about that part of the business.
NASDAQ: AOSL
Key Data Points
The real draw is Alpha and Omega Semiconductor's pivot to supporting advanced computing systems, which gives it exposure to the artificial intelligence infrastructure expansion.
"In Advanced Computing, demand is broadening across a wider set of customers and platforms, including increasing engagement with leading cloud and hyperscale partners, driving growth in our medium-voltage solutions," CEO Stephen Chang said in the press release detailing the company's fiscal 2026 Q3 results.
Interest from hyperscalers can change the revenue growth narrative for a chipmaker overnight. Alpha and Omega Semiconductor's top line was $163.8 million in its fiscal Q3 (which ended March 31), so a few big deals for the advanced power semiconductors it has designed for AI data centers could drive meaningful revenue growth.
The outlook for advanced computing
The ultimate question when assessing Alpha and Omega Semiconductor as an investment is: How long might it take for that meaningful growth to arrive? The company's latest earnings call offered some hints. Most of its business segments' revenues declined year over year, but there were some exceptions.
The one worth monitoring is the computing segment. It was up only 2.1% year over year and accounted for 49.1% of total revenue. But with that, advanced computing accounted for 25% of the segment's revenue, and its total rose by more than 40% year over year. It also more than doubled sequentially.
Advanced computing now accounts for roughly 12.3% of the entire business, but that's the piece of the business that's driving all of the recent excitement around the stock. If the advanced computing segment continues to produce tremendous sequential gains, it would become a larger part of the entire business and push lagging segments into the background.
On the earnings call, Chang said that the company expects its computing segment revenue to grow sequentially in the low-to-mid single-digit percentages in its fiscal 2026 Q4. That segment's top line edged down by 0.1% sequentially, so those expectations for a sudden shift to respectable sequential growth may be fueled by upbeat growth projections for the advanced computing business.
Many investors are on the hunt for stocks with a significant percentage of their revenues tied to the AI infrastructure build-out. Alpha and Omega Semiconductor could be a compelling long-term pick in that category. However, it would be better to prioritize companies that are fully embracing the opportunity now rather than those that are at least a few months away from AI having a meaningful impact on their finances.
