Why Aehr Test Systems Rocketed 18% Higher Today

Shares of Aehr Test Systems (NASDAQ: AEHR) rallied 18% Friday, as of 1:43 p.m. ET.

The maker of wafer-level test and burn-in devices reported earnings for its August quarter yesterday, beating expectations. But more important than reported results was management's commentary that Aehr is penetrating new markets, especially artificial intelligence (AI) accelerators.

Aehr is a small cap with a big opportunity

Last night, Aehr reported earnings for its fiscal first quarter ending in August. While revenue was down 36.5% to $13.1 million, that actually beat analyst expectations, as did the non-GAAP (adjusted) earnings-per-share (EPS) figure of $0.07, which came in well above expectations of $0.01.

Aehr's devices test semiconductors by subjecting them to high voltages on the wafer, simulating rugged conditions they would endure if deployed in the real world.

Testing at the wafer level is a somewhat new endeavor, but makes sense for a lot of new types of power-hungry chips. These include silicon carbide (SiC) chips for electric vehicles and infrastructure, which is Aehr's core market. With the slowdown in electric vehicle sales over the past year, investment in Aehr's systems has declined.

However, on the post-earnings conference call, CEO Gayn Erickson noted "stabilization and increasingly positive discussions" with the company's SiC customers in recent days. Not only that, but Aehr also received its first orders to test AI accelerators as well. This is an exciting development, as AI accelerators are expected to achieve hypergrowth over the next few years. Given that they draw a lot of heat, it's fair to say AI chips would benefit from wafer-level burn-in testing. In addition, Erickson noted that the company's first Gallium Nitride (GaN) customer would be moving from testing to full production in the year ahead.

Aehr's shares look expensive but revenue could skyrocket

For the fiscal year ending next May, management projects "at least" $70 million in revenue and earnings before taxes of "at least" 10% of revenue. At first glance, that doesn't seem to justify a market cap of $450 million after today's rally.

However, current results are really the bottom of a bad EV down cycle. As that market recovers, new applications in GaN and AI accelerators could add lots of revenue and earnings growth. So, Aehr is a somewhat speculative play that could disappoint, but could also bloom into a multibagger.

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Billy Duberstein and/or his clients have positions in Aehr Test Systems. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.