Artificial intelligence (AI), largely deployed using centralized data centers, is slowly moving to computers and smartphones, potentially leading to productivity gains across the economy — something that wouldn’t be possible without advanced semiconductors provided by companies like Nvidia, Advanced Micro Devices and Micron Technology.
Some smaller companies provide important equipment and services to these semiconductor giants, but tend to fly under the radar of investors. (Nasdaq: ACLS)For example, the company supplies chipmakers with ion implantation equipment that is essential to the manufacturing process, and AI is already driving demand for its products.
Axcelis shares are currently very cheap compared to its peers, and here’s what makes the company a great buy as the AI revolution gathers momentum.
A unique way to invest in the AI revolution
Ion implantation is an essential part of the manufacturing process for central processing units (CPUs), memory chips and power devices (which control power in high-current applications). The power devices segment has been an especially profitable area for Axcelis in recent years, thanks to the electric vehicle industry, which is constantly looking for ways to charge batteries faster and enable cars to travel longer distances on a single charge.
But data centers built for AI consume large amounts of energy, creating new opportunities in this space. Some Axcelis customers have started using silicon carbide-based trench metal-oxide semiconductor field-effect transistor (MOSFET) power devices for their AI infrastructure. Silicon carbide chemistry is more thermally efficient and robust for heavy-duty tasks than traditional silicon chemistry, but is implant-intensive, providing a direct tailwind to Axcelis’ business.
AI chips also present a growth opportunity for Axcelis. Many of Nvidia’s designed graphics processing units (GPUs) for data centers have built-in memory that requires ion implantation. And as computers and devices need more dynamic random-access memory (DRAM) capacity to run AI software, manufacturers may need to expand production facilities, creating organic demand for Axcelis’ equipment.
Towards strong growth in 2025
Axcelis achieved record sales and profits in 2023, far exceeding initial expectations, so topping those results in 2024 was always going to be a challenge.
Axcelis brought in revenue of $256.5 million in the second quarter of 2024 (ended June 30), well above management’s forecast of $245 million, but still down 6.3% from the same quarter in 2023. Wall Street expects the company to make just over $1 billion in total revenue for the full year of 2024, down slightly from last year.
The story continues
However, Axcelis’ guidance suggests the company could return to growth in 2025, with sales up 24% year over year to $1.3 billion. The company currently has a backlog of more than $1 billion, which could put it on track for a strong performance in 2025.
Moreover, Axcelis has already started building up inventory as it expects memory chipmakers to start ramping up production capacity in late 2024 and into 2025. Moreover, the company expects the silicon carbide power device market to grow 25% annually through 2029, driven by demand for AI data centers and electric vehicles, providing a foundation for stable revenue growth in the long term.
Axcelis shares are cheap right now
Despite the slowdown in revenue, Axcelis remains highly profitable, with earnings per share of $7.26 over the last 12 months and a price-to-earnings ratio of just 13.5.
That’s 42% cheaper than the S&P 500, which is trading at a P/E of 23.8, and significantly cheaper than the iShares Semiconductor ETF, which is trading at a P/E of 32.8. In other words, Axcelis’ stock would need to rise by more than double to trade at the same level as its semiconductor sector peers.
The company’s lack of growth is the main reason its shares are trading at such a discount right now. To spark a recovery, the company needs to prove to investors that it can deliver on its 2025 forecasts. But if it succeeds, investors who buy shares in the company now could stand to reap handsome profits.
Should you invest $1,000 in Axcelis Technologies right now?
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool owns shares in and recommends Advanced Micro Devices, Nvidia, and iShares Trust-iShares Semiconductor ETFs. The Motley Fool has a disclosure policy.
The Top Semiconductor Stocks to Buy for the AI Revolution was originally published by The Motley Fool.
