The below thesis was posted to our platform earlier this week. Given earnings are this week, wanted to briefly mention my expectations here and remind current and potential subscribers that they can join our weekly elite call next Monday to discuss. For a longer list of what’s next for the company, you’ll find the last section below dedicated to my expectations.
Tomorrow’s Earnings
The company did receive waferpak orders during the quarter, so is likely to post revenue in the $13m range, nothing explosive, but maintains the large cash position. Based on comments from Seagate in early September (Citi conference), it appears their HAMR HDD drives, which is the likely product referenced in updated investor presentation, are ramping in Q2 2025 but beginning volume shipments later this quarter. Unless plans have changed, investors should expect imminent orders for initial production systems, and larger orders in the spring.
I would like to hear the results of the testing performed with the AI accelerator customer. The testing was supposed to take 2 months and began in July/August timeframe. The customer has apparently been accelerating the testing and is eager to move forward should the testing be successful. Gayn has been highly confident their test systems would meet the customers needs.
About the Company
Aehr Test Systems (NASDAQ: AEHR) is a provider of semiconductor test and burn-in equipment, specializing in high volume wafer-level burn-in solutions. While the company was founded in 1977 and the company’s lead product, the Fox-XP, first came to market in 2014 (several years after I started following the company), the company is just now gaining traction.
The Fox-XP can test 18 wafers at a time and is capable of testing with very high power. These qualities are just now becoming in demand as yields are becoming more important and high power testing a necessity, particularly in AI applications. As semiconductors become more complex, failure rates increase, driving demand for test equipment. Performing the test at wafer level can lead to higher yields vs. testing after assembly and packaging.
Recent History
The company first started gaining traction in the Silicon carbide (SIC) market, landing ON Semiconductor as a customer that began ramping in 2021. This led to a 20x increase in the share price as AEHR received large orders on a regular basis. AEHR now has several customers for this application who intend to ramp as well.
However, a slowdown in EV sales and sentiment has led to a gap in orders as fab expansions have been pushed out while the industry absorbs excess supply. The stock is down ~80% from its highs, offering us another opportunity as attractive as in 2021 before the flood of ON Semi orders.
Opportunities and Market Size
AEHR is becoming involved in an increasing number of opportunities, including SIC, Gallium Nitride (GaN) and other power semiconductors, 2D and 3D sensors used in mobile phones, tablets, and other computing devices, memory semiconductors, AI processors, microcontrollers, systems-on-a-chip, and photonics and integrated optical devices.
SiC and GaN
These compounds are increasingly found in vehicle inverters, solar investors, and charging infrastructure.Wafer capacity is expected to increase from 150K per year to 4m+ by 2030. OEMs are becoming increasingly interested in purchasing known good die to maintain yields and reliability levels. Previously OEMs were not interested in test and burn in, however, today they are hiring test engineers and becoming involved in test design.
Most recently, ON Semi, AEHR’s largest customer expanded its customer base beyond Tesla to include Volkswagen group with a number of new design wins. AEHR also sells waferpaks at 50%+ margins that are needed for each new product iteration. As their customers complete their fab buildouts, orders should begin to flow. AEHR has half a dozen SiC and GaN customers which should provide a significant runway for growth over the next few years as they ramp.
Hard Disk Drives
Also on the front burner is a data center opportunity that has been simmering on the back burner since AEHR first sold to this customer in May 2019. It is likely the customer is using AEHR to test their HAMR drives, a product which Seagate is expected to ramp in December and again more significantly in mid 2025. This is perhaps the clearest near term opportunity for AEHR given the time to ramp.One should expect orders at any time.
AI Processors
AEHR recently received a commitment to benchmark their system with a prominent AI processor developer.This is likely to be one of the majors, Apple, Microsoft, Amazon, AMD, etc. The company expects results a couple months following this announcement on the most recent earnings call in late July.
AEHR recently purchased Incal, a local test equipment manufacturer of packaged part burn in solutions boasting a significant customer list of AI accelerator chipmakers. The acquisition allows AEHR to use its size to scale Incal’s equipment sales, while covering both wafer level and packaged part for these customers depending on which direction they want to go.
Memory
AEHR has targeted this market for years as the opportunity is both massive and the value proposition is attractive. This summer AEHR announced they are working with a flash memory company benchmarking AEHR’s solution. While this is likely to be a multiyear process, the upside to this opportunity is huge. Memory fabs are very high volume and the current test time math suggests a fab would need 50-100 testers each. AEHR currently sells a fully loaded, 18 wafer test machine, plus automatic aligner for over $3 million each.
What’s next for AEHR
Each of these opportunities runs on a different timeline and any of them can accelerate at anytime. That said here are my expectations for these opportunities:
Later this year, perhaps Oct/Nov we see initial volume production orders for the data center (hard disk drives) opportunity stating they expect follow-on orders in the near future.
SiC business comes back with follow on orders from ON Semi due to their new wins with VW.At least one new customer ramps as their fabs near completion and begin to install tools and equipment.Additionally the GaN customer makes another purchase to ramp their solution into production.
The AI accelerator company, who has been accelerating the benchmark from what I hear, based on favorable results to date, places engineering and initial production orders.
The memory benchmark goes well and the company purchases an engineering system to hone the process ahead of volume production.
Lastly, the SiC opportunity came out of nowhere and surprised AEHR investors and the company itself. It is not unlikely a new opportunity presents given the rapid growth in semiconductors and complexity of new technologies.
AEHR is currently sitting on a large pile of cash raised at higher share prices. While some modest growth is priced into the stock, any of the opportunities above has the potential to generate hundreds of millions of annual revenue if they ramp with multiple customers. A big win in memory, a market they have been chasing and for which their XP machine was originally designed, would be a game changer, potentially justifying a triple digit share price.
Own some. Bought in 12s sold 1/4 at 19. This could move at anytime and sb a very good long term hold. Also own $STX.