As rates of interest elevated and made the acquisition of latest autos extra prohibitive within the final 12 months, corporations specializing in electrical autos (EVs) have taken it on the chin in latest months. That features tiny Aehr Take a look at Methods (NASDAQ: AEHR), a specialist that makes gear utilized in manufacturing of silicon carbide (SiC) chips for high-voltage energy gadgets — together with in EV motors and EV charging stations.
A lot has already been mentioned concerning the outlook for EVs, which can simply be going by way of some rising pains. Aehr itself predicts a rebound in gross sales within the present quarter (spring 2024). Nevertheless, within the subsequent couple of years, a brand new development market might emerge for the tiny firm: synthetic intelligence (AI) methods.
A miss on earnings, however the future potential continues to be there
Aehr simply whiffed on its third-quarter fiscal 2024 (the three months resulted in January 2024) earnings report. Prospects pushed again supply of SiC take a look at and burn-in gear till later this 12 months because of present extra provide of chips for the auto business. Aehr’s take a look at gear helps weed out dangerous SiC chips. The machines additionally do burn-in, which “ages” the SiC chips by working electrical present by way of them for a set time period — a obligatory step distinctive to SiC that helps with efficiency of those high-power gadgets as soon as they get put in into EVs.
The corporate previously anticipated $75 million to $85 million in revenue in fiscal 2024 however lowered its steering to at the least $65 million. That is roughly according to gross sales in fiscal 2023, as prime clients like Onsemi lap the heavy spending they did on Aehr gear the final couple of years in preparation for his or her SiC chip manufacturing.
The excellent news for Aehr is that it seems it is going to stay worthwhile even throughout the EV downturn. It expects usually accepted accounting ideas (GAAP) web earnings to be at the least $11 million for fiscal 2024.
Information by YCharts.
Aehr has been working to diversify its buyer base. The present auto business volatility put a damper on a few of that progress. Nevertheless, AI might do a lot to assist Aehr supercharge these efforts. I wrote concerning the promise of silicon photonics for Aehr in early 2023, as corporations like Nvidia, Superior Micro Units, Intel, Taiwan Semiconductor Manufacturing, and others work on incorporating this expertise into their designs and manufacturing capabilities.
What does photonics should do with AI?
To be clear, there isn’t any timeline for when precisely silicon photonics shall be a viable marketplace for Aehr’s gear. Nevertheless, as AI methods will devour extra knowledge and energy, tiny silicon photonics (which make the most of lasers to hurry up knowledge transmission between chips) might assist clear up knowledge bottlenecks in these advanced gadgets.
Aehr CEO Gayn Erickson has defined that the testing of photonics in AI chips could possibly be a giant marketplace for Aehr in some unspecified time in the future within the not-so-distant future. Erickson mentioned on the lastearnings callthat six clients are utilizing Aehr gear for take a look at manufacturing of photonics in AI gadgets.
Similar to SiC energy chips, dangerous photonics chips must be weeded out of the manufacturing course of. Burn-in additionally helps stabilize these gadgets earlier than last set up in an AI system. Aehr could possibly be sitting on one other development outlet.
Small firm, small bets for traders
At this juncture, Aehr continues to be in want of an uptick within the international EV business if shares are to get again on monitor. Nonetheless, the enterprise has proven it has potential optionality, as its machines utilized in semiconductor manufacturing could possibly be greater than an EV one-hit marvel.
Shares commerce for about 20 instances trailing 12-month earnings per share, a metric poised to worsen earlier than it will get higher, given the dip in gross sales to SiC chip clients. Small-cap stocks are laborious, and wild swings in inventory value are the norm. Maintain any guess small on this enterprise. Nevertheless, I am blissful to maintain my small place to see how this story performs out.
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Nicholas Rossolillo and his purchasers have positions in Superior Micro Units, Aehr Take a look at Methods, Nvidia, and ON Semiconductor. The Motley Idiot has positions in and recommends Superior Micro Units, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends Intel and ON Semiconductor and recommends the next choices: lengthy January 2025 $45 calls on Intel and brief Could 2024 $47 calls on Intel. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.
