What we think about Aehr Test Systems (AEHR)
Aehr in Three Words: AI Picks & Shovels
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Background
AEHR Test Systems makes the stress-testing machines that ensure new chips don't break.
Its burn-in reliability qualification equipment expose prototype circuits to extreme temperatures and voltages, in an attempt to identify potential defects or points of failures early before they're sent out for high-volume manufacturing.
The company sells to various industries, including automotive, mobile, and datacenter computing and cites AI, electric vehicles, and photonic enabled datacenters as its primary growth drivers.
This is a "picks and shovels" play; a small-cap company in a niche industry who could benefit from the computing world's upcoming tailwinds.
Yet AEHR has struggled during the chip industry's recent cyclical downturn, shedding nearly 80% of its market capitalization in response to declining customer orders and uncertain forward visibility. Electric vehicles built upon silicon carbide wafers are taking longer than expected to hit the pavement, and the delays have recently driven AEHR's net income into the red.
Despite the struggles, management remains optimistic about the upcoming year:
"Looking ahead to fiscal 2025, we anticipate silicon carbide will continue to be a key contributor to revenue, but we are also expecting bookings and revenue across a much broader range of customers and markets.
We are seeing traction with emerging opportunities for our wafer level burn-in solutions in new target markets, such as silicon photonics integrated circuits used for optical I/O communication between chipsets and processors, gallium nitride power semiconductors used in data centers and solar power conversion, semiconductors used in hard disk drive magnetic read/write heads, flash memory devices used in solid-state disk drives, and production test and burn-in of artificial intelligence (AI) processors.”
These claims remain narrative-based until we see revenues actually hitting the bank. And it's perhaps too early to write off the stock; as EVs and photonics in the data center could still prove to be the growth drivers they are expected to be.
In the meantime, we'll keep an eye on billings, profitability, and cash on hand as AEHR does its best to weather the storm.
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