Research Notes: The Binary Case For Aehr Test Systems
Q4 earnings suggest a much bigger opportunity than expected.
Highlights:
A growing silicon carbide (SiC) business led AEHR to be treated as a pure play on electric vehicle adoption — which has put the stock on a roller-coaster ride over the past four years.
Despite a rising stock price, Q4 earnings don’t look impressive. But commentary from Aehr (and around the industry) suggests SiC applications can extend far beyond EVs.
There is a key question here: where are the customers?
Aehr Test Systems Pops After Earnings
Aehr Test Systems AEHR 0.00%↑, a manufacturer of test and ‘burn-in’ systems for chipmakers, has substantial exposure to the development of silicon carbide (SiC) chips used in electric vehicles. It’s been SiC that has driven recent growth and future optimism over the past few years, making Aehr more of an EV pure-play than its technology might suggest. Right now, AEHR seems the epitome of the broader trend in the space.
AEHR has now doubled in just three weeks. That includes a 22% gain on Wednesday, after revenue in the fourth quarter of fiscal 2024 (ending May) declined 26% year-over-year. Quite clearly, investors are either trying to skate to where the puck is going, rather than where it’s been — or traders are simply taking yet another stab at risky and volatile plays. AEHR is certainly the latter: shares are still down 22% so far this year, and off more than 50% since early October.
As with the space as a whole, there’s a way to see AEHR as both a potential short — nearly 20% of shares outstanding were sold short before the release — and a solid long. The skeptical response to earnings is that nothing here looks quite that impressive. The outlook for fiscal 2025 of “at least” $70 million in revenue did beat what appears to be a two-analyst consensus estimate of ~$68 million (per Koyfin) — but that outlook also implies just 6%-plus growth on top of a 2% increase in FY24.
In fact, on an organic basis guidance appears to forecast a decline in revenue in FY25. On Wednesday, Aehr announced an acquisition of another test and burn-in player, Incal Technology, which is having some early success in artificial intelligence. On the Q4 call, chief executive officer Gayn Erickson said Incal would contribute about $1 million per month in revenue. With the acquisition not yet closed, ~$10 million of the $70 million is coming from Incal, suggesting organic growth as weak as -10%.
All told, there are three reasons why AEHR rose 20%-plus on Wednesday, and bears would likely dismiss all three. First, the “strong” top-line guidance came from an acquisition; the organic outlook actually looks close to disastrous: at least $60 million from legacy Aehr against consensus of $68 million. (Margin guidance appears a bit soft as well.)
Second, the Incal acquisition almost by definition can’t account for a $111 million increase in Aehr’s market cap on Wednesday; Incal accepted just $21 million for the business1. Notably, that implies a price to revenue multiple under 2x; AEHR’s EV/revenue, pro forma for the deal and even assuming ~$75 million in FY25 revenue, is currently almost 8x2. It’s hard to see Incal accepting such a lowball offer if its technology is truly innovative in such a growing industry, though Aehr did say in its earnings release that the deal opens up a ~$100 million annual opportunity.
There is another piece of news that might have amplified the optimism: Aehr announced a $12.7 million order for its WaferPak™ contactors. That, too, bears would likely dismiss — and even see as further confirmation of the bear case.