Today witnessed a 25% rise in Aehr Test Systems' share prices, largely attributable to a significant development in the realm of AI.
Shares of Aehr Test Systems (AEHR, up 24.65% by noon on Monday) experienced a notable surge. The surge occurred on the same day the company declared a major breakthrough, securing initial production orders worth $10 million for semiconductor test and burn-in equipment (used for testing semiconductors under electrical stress) from an artificial intelligence (AI) client.
The Significance of the Deal
The deal holds substantial importance for three primary reasons. Firstly, the deal's substantial size is noteworthy, particularly considering Wall Street analysts' estimates suggest the company will generate only $70.8 million in revenue by 2024.
Secondly, the AI customer helps broaden Aehr's revenue sources from various markets. The company is well-known for its involvement in the silicon carbide chip industry, which is crucial for electric vehicle (EV) power electronics.
This latest deal contributes to diversifying Aehr's revenue sources, and it also indicates the optimism expressed during the Q1 2025 earnings call in October, when CEO Gayn Erickson discussed potential orders from an "AI accelerator company" and stated, "As we've mentioned before, based on the production forecast, we believe they could potentially be more than a 10% customer for us this fiscal year alone." The company seems to have followed through on this promise.
Lastly, Aehr is often perceived as a risky investment due to its heavy customer dependence. For instance, during its 2024 fiscal year, ending May 31, two customers contributed to 67% and 17% of the net revenue. The risk of one significant customer suddenly reducing its expectations for investment could significantly impact Aehr's growth projections. This has indeed occurred in recent years due to high-interest rates affecting electric automaker capital investment plans.
Expansion is on the Horizon
The deal paves the way for new opportunities, and with a chance of lower or stable interest rates boosting EV capital investment, the stage is set for Aehr Test Systems to see robust growth in the coming years, as well as more diversified revenue and customer streams.
This significant deal in the finance sector, worth $10 million, could potentially increase Aehr Test Systems' revenue stream beyond their 2024 estimates, as money generated from this AI client may contribute to more than 10% of their revenue this fiscal year. With the prospect of lower interest rates, investing in Aehr Test Systems might be an attractive option, considering the potential growth of the electric vehicle market and the diversification of their customer base.
