The semiconductor industry is experiencing a strong demand for chips across various sectors, such as automotive, cloud computing and artificial intelligence. While there is a lot of talk semiconductor stocks such as Nvidia’s (NASDAQ:NVDA), or the potential of AMD (NASDAQ:AMD), there is little ranting or raving about the equipment needed to manufacture or test these chips before they hit the shelves.
Nonetheless, as the technology trends evolve and the chip complexity increases, semiconductor manufacturers will require advanced equipment and solutions to produce high-quality, reliable chips. In this article, I will introduce three semiconductor stocks that investors should consider.
Aehr Test Systems (AEHR)
Aehr Test Systems (NASDAQ:AEHR) is a global provider of test systems for burning-in and testing logic, optical and memory integrated circuits. The equipment provider sells machines called FOX systems and these machines require consumables called WaferPak Contactors and DiePak Carriers. Together, the machines and consumables are designed for testing different types of chips.
Market-watchers and public equities investors alike have given AEHR’s shares much attention this year due to the company providing testing equipment and services for electric vehicle (EV) components. Given that demand for electric vehicles has continued unabated well into 2023, AEHR is benefitting from strong demand for its products, even among leading EV makers and suppliers like Tesla (NASDAQ:TSLA).
However, testing EV components is only one of AEHR’s end-markets. The firm also designs equipment to test silicon photonics devices, which are an alternative to traditional fiber optic transceivers currently used in data center and telecommunication infrastructure. As enterprises continue to migrate to the cloud and rely upon faster 5G telecom infrastructure, AEHR’s testing products and solutions will be in higher demand.
The firm’s shares have risen 162% year-to-date (YTD) and can continue to rise as sustained secular tailwinds keep on driving top-line growth.
ACM Research (ACMR)
ACM Research (NASDAQ:ACMR) is a leading supplier of wet processing equipment and technologies for the semiconductor industry. Semiconductor manufacturers can use ACM’s wet-cleaning and front-end processing tools to produce higher yields in their manufacturing processes. The company has a particular focus on China, where it conducts most of its product development, manufacturing and support services are based. While the firm also has customers in South Korea and North America, its focus on China-based customers could provide it with an opportunity to benefit from the burgeoning semiconductor sector there.
ACM Research is delivering impressive quarterly financial results in 2023. In their second quarter earnings print, the firm announced operations had largely gone back to pre-Covid levels, which would help the company to focus on its growth and expansion efforts. Second quarter revenue came in at $144.6 million, representing a year-over-year (YOY) increase of 38.4%. The company maintained its prior revenue guidance and expected revenue to be between $515 million to $585 million in 2022, representing a growth rate of 32.4% to 36.3% YOY.
Though the stock has certainly skyrocketed in value this year, ACM’s share value remains cheap while only sporting a forward-looking enterprise value to EBITDA ratio of 9.5x forward EBITDA. With an inexpensive valuation, growing customer base and operations getting back on track, ACM Research could make a profitable long-term bet among semiconductor stocks.
Axcelis Technologies (ACLS)
Axcelis Technologies (NASDAQ:ACLS) is a worldwide supplier of ion implantation systems and services for the semiconductor industry. Ion implantation is a process that modifies the electrical properties of semiconductor materials by implanting ions into them. This complex process is a principal step in creating transistors, diodes, resistors and capacitors among other components on semiconductor chips.
Axcelis Technologies is well-positioned to benefit from the increasing demand for high-quality semiconductors that require precise and pure ion implantation. The company’s Purion systems are uniquely capable of implanting power devices which are used in electric vehicles, renewable energy and industrial applications. The company was able to beat Wall Street’s expectations for the second quarter partially due to having experienced particularly high demand for this technology.
Both of the aforementioned end-markets are expected to grow significantly in the future, creating more opportunities for Axcelis Technologies to grow its revenue and expand profitability margins. Axcelis has even increased guidance for the year and expects to generate more than $1.1 billion in revenues, which would represent YOY growth above 19.5%. With shares already up 126% YTD, investors definitely should consider buying now before ACLS’s rally continues.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
