Aehr Test Systems - Ahead of Earnings Today

Lot of people have asked about Aehr and there’s been great discussion on the board about it already. After earnings I assume there will be more discussion and some people who missed the first couple of discussions wondering, what is this company called Aehr? And why should I … care?

This post will answer some of those questions.

I’m expecting this stock to be much more volatile (especially with earnings later today) than most that come up here - my estimate is that it’s among the riskiest companies I’ve reviewed. More on this later, but proceed with extreme caution. Potential reward is very high, but so is risk. I’m bullish and have initiated a small/medium sized position.

What does Aehr Do?

Aehr Test Systems has a solution for a major problem in the silicon carbide (SiC) industry. They develop and sell machines that perform reliability screening and stress testing of semiconductors. This testing is crucial, especially in the electric vehicle (EV) market where perfection is required. Aehr’s machines can test a whole batch of chips at once, reducing waste and saving costs compared to traditional methods. Their machines are also more affordable and space-efficient. Overall, Aehr Test Systems provides essential machines that improve efficiency and save costs in the production of SiC chips.

Investment Thesis

At a high level, it is a classic story of rapidly improving financials, bolstered by patented solutions within a growing market. The market mentioned is silicon carbide, which I will explain more about next.

About Silicon Carbide (SiC)

It has all the good qualities of regular silicon, plus some extra capabilities that are super useful in power electronics. They enable faster charging, higher power, improved efficiency, compact designs, and longer device lifespan. These advantages make SiC a game-changer in the semiconductor industry, especially for power electronics in electric vehicles. And while we focused mostly on electric vehicles here, enabling faster charging, higher power, etc also would be helpful in other use cases, such as AI.

The SiC market is rapidly growing in the power electronics industry, with early adoption seen in the electric vehicle (EV) sector. SiC offers advantages such as higher voltage and temperature capabilities, leading to benefits for EV manufacturers and consumers. The adoption of SiC chips by Tesla for its Model 3 in 2018 marked a significant milestone for the automotive industry. Experts predict immense growth for the SiC market, with estimates of its chip sales reaching $7.1 billion in 2026, compared to $1.7 billion in 2021 . The EV industry’s demand for SiC is driving substantial increases in wafer capacity, with estimates projecting a rise from 125,000 wafers in 2021 to 4,000,000 wafers in 2030. The benefits of SiC extend beyond EVs, positively impacting other power electronics markets such as renewable energy and data centers. As the market expands, the growth potential can be further enhanced by adjacent power electronics sectors.

Razor and Blade Model

Aehr Test Systems has a business model similar to the razor and blades model. They sell machines called FOX systems, which are like razors, and these machines require consumables called WaferPak Contactors and DiePak Carriers, which are like blades. The machines and consumables are designed for testing different types of chips on wafers. The machines have a longer lifespan, but the consumables need to be replaced every two to seven years. This creates a recurring revenue cycle as chip technology improves and chip designs change (such as new chip designs coming to market), requiring new consumables. The company expects this recurring revenue to become a significant portion of their annual revenue. By growing their install base and adapting to new chip technologies, Aehr Test Systems aims to increase their recurring revenue.

Management guided consumables to increase to 50% of their revenue over time, up from 45% in 2022 and 35% in 2021. I think it’s important to emphasize that, while Aehr does have a recurring revenue model, it is not nearly as recurring as, say, Crowdstrike. Or really any SaaS company for that matter.


Looking at Aehr’s financial data for the past decade, Aehr rarely did more than $7m per quarter. It wasn’t until 2021 where they did their first $9m quarter. From there, 2022 continued break neck growth, seeing average quarterly revenues of $15m.

A couple patterns regarding revenue growth: One pattern which sticks out like a sore thumb is that, the company appears to be prone to big drops in revenue in the quarter ending in August (the company’s fiscal Q1). Per earnings transcript, the company chalks this up to seasonality. Looking at previous fiscal Q1’s shows a clear pattern here.

The other pattern is revenues trending up and to the right - a hallmark of any successful growth stock.

Regarding margin and profits, the company is GAAP profitable and has seen profits of $3.7m and $4.1m in recent quarters. Although this is not much money compared to other companies I follow, the margins achieved are impressive. Its net margin most recently was 24%. Furthermore, gross margins have significantly expanded in recent years. As recently as their fiscal Q1 in 2020, gross margins were as low as 10%. Their most recent fiscal Q1 showed margins of 42%, and their most recent quarter (fiscal Q3) showed margins of 52%.

So in a nutshell, the investment thesis is that the market for silicon carbide is going to more than quadruple within a few years and that Aehr makes the best solution on the market for testing silicon carbide. The company has recurring revenues and has demonstrated rapid revenue, margin, and net income growth, all classic signs of an extraordinary growth stock.


Worth saying again, it should be noted this is probably among the riskiest companies I’ve ever reviewed. Some top of mind risks:

High Customer Concentration risk: More than 90% of its revenues comes from just two customers, which is an insane amount of customer concentration risk. There is a very simple reason for this - only a small number of companies are making silicon carbide (SiC) chips for electric vehicles (EVs) in the first place. This means that if those customers decide to change their suppliers or reduce their orders, it could have a major impact on Aehr’s revenue.

Competition risk From Existing Semiconductor Equipment Manufacturer/Startup: Big players in the semiconductor industry, like KLA or Lam Research, might enter the SiC testing market. These companies have more resources and a stronger financial base compared to Aehr. If they decide to compete in this market, it could seriously disrupt Aehr’s ability to generate revenue.

SiC Market Risk - SiC doesn’t reach mass adoption: SiC is considered the future of power electronics, especially for EVs. However, if SiC fails to become widely adopted in the EV industry, it would be bad news for Aehr. Since Aehr primarily focuses on serving this industry, a lack of widespread adoption would severely impact their most important customer base and, as a result, their revenue.

Geopolitical risk: The company “operates sales and service” in Taiwan. In the event China decides to invade Taiwan, this could certainly affect the company’s ability to do business.

Portfolio Sizing and Conclusion:

All investors need to weight the risk appropriately for their risk profile. For my own risk profile, my conclusion is that this stock is a no brainer to maintain at least a 3%-5% position in, so long as their business fundamentals continue steady up and to the right, minus some seasonality within reason.

Reminder that everyone should come to their own conclusions and do their own due diligence. A stock that is right for me may not be right for you.


Sorry, posted on the other thread I started. Sorry I didn’t know if it was possible to merge with your pre-earnings post. My apologies, @ExponentialDave


Thanks for this write-up. I took a half-size position in AEHR this past Monday, and the thing that convinced me was checking out management–specifically two videos with CEO Gayn Erickson.

The first video is 11.5 minutes, and there were two things I loved about this interview:

The first was Erickson’s ability to explain what they do and why they stand out from the competition in easy-to-understand language.

The second was the story of how he came to be CEO. Erickson is not the founder, but he has been in testing his entire career, and he talks about trying to acquire AEHR when he worked for another company, because he recognized their advantage. But before that company (where he was not CEO) could act, it was bought out by a Japanese firm. So Erickson left there and went to work for AEHR directly.

The second video is almost 40 minutes and this, naturally, gives a lot more detail about the company, the products, and importantly, how conservative they are in how they book revenue.

He didn’t say this directly, but the metric to watch, imo, is the number of bookings/backlog. While others might book when a shipment is made, Aehr waits until they hear the customer is satisfied and is clear that the product is working as intended. They offer a 100% refund if it is not. “Customer acceptance” is when they book the revenue, which could be a fair amount of time after receipt of the equipment. At least as of the above recording (8 months ago), no one has ever reported a failure (i.e. refused “acceptance”), but all of that leads to a long period from booking a sale to booking the revenue. I’m focusing on bookings/backlog more than received payments.

Erickson talked about his enjoyment in meeting with potential customers to watch them react as he tested their product in real time and their chips began to fail at a much higher rate than they had imagined. I’m not sure how much he’ll get to do that as they scale, but it was a fun window into who he is.

I don’t remember which video described it, but they test more than Silicon Carbide (SiC) chips. A chip he speaks about as a growing part of their business is gallium nitride (GaN). Here’s a Techradar piece about the advantages of GaN over SiC. China is about to restrict export of gallium on August 1, so it’s hard to say how that will affect that ramp up, but it seems clear that Erickson sees gallium as a next-gen chip material.

The above was written just before earnings this afternoon. I saved it as a draft to wait for the report and call. I was nervous about getting into a company that can be so volatile right before earnings, but so far so good.

Others are reporting on the numbers, which seemed quite good to me. What I’m better qualified to judge are the people, and, both in the above videos and on the call, I heard a stellar CEO.

Importantly, I heard the same person in all settings. Gayn Erickson is honest and transparent. He is also an excellent communicator. He takes time in all settings to explain the technology. On the call, twice he began a description with “For those who are new to us,” or “For those not familiar,” followed by helpful descriptions for those of us not in the weeds of semiconductors, their use, and their testing.

He also has a knack for explaining their secret sauce. When talking about their ability to test at high voltage without arcing, he said there was “no other [competitor] that can even test one [chip] at this level. We can do nine at once.” (approximate quote…don’t have the transcript yet.) He frequently throws in the adjective “proprietary” when talking about their wafer packs, which are the consumables that will be the recurring revenue part of their business.

Lastly, Erickson is a visionary leader with deep expertise in the field. He saw Aehr coming a mile away, working to acquire the company when he worked elsewhere. He knows that SiC chips are the thing of the moment, but he also sees the next thing on the horizon (GaN chips) and is already testing them. On the call, he talked about how memory applications will be knocking on his door in a decade, if not before. He’ll be ready for them. On the call he talked about knowing the needs of his customers before they did.

At market close today I had a 6.1% position. Shares were up almost 6% from when I bought on Monday and are up now about 5.5% more. We’ll see what tomorrow brings. Thanks to Saul, @ExponentialDave, and all who have been holding and posting about Aehr and convinced me to give it a closer look. I’ll be adding more when the market gives me an opportunity.



beat Wall Street’s targets for its fiscal fourth quarter. But its sales outlook for the current year came up a tad short.

arned an adjusted 23 cents a share on sales of $22.3 million for the quarter ended May 31. Analysts polled by FactSet had predicted earnings of 21 cents a share on sales of $22 million. In the year-earlier period, Aehr earned 23 cents on sales of $20.3 million.

For the current fiscal year, Aehr forecast revenue of at least $100 million, representing growth of over 50%. However, Wall Street had been expecting fiscal 2024 sales of $102.6 million. In the just-ended fiscal 2023, Aehr posted sales of $65 million, up 28% from the prior year.

Also, Aehr sees net income rising more than 90% in fiscal 2024 to at least $28 million. Last year, its net income rose 54% to $14.6 million.

CEO: fourth-quarter performance was fueled by sales of test gear for silicon carbide semiconductors used in electric vehicles and EV charging infrastructure.

Another growth area was equipment for testing silicon photonics devices used in data and telecommunications infrastructure, he said.

“We saw fiscal 2023 as a breakout year for our unique and proprietary wafer level test and burn-in products,” Erickson said. “Our engagements with numerous potential customers give us confidence in our growth expectations over the next several years.” (CEO)

Up 4.6% after hours as of 9:25PM

Earnings history and estimates for future (2025 looks good)


Hey @PuddinHead42, just wanted to point out that this company is not like our others with regard to “Wall Street expected…” in terms of future guides.

There’s only one analyst (as of today).

Our SaaS companies usually have, by comparison, 20-40 analysts and an aggregate guide is computed.

I am certain we are going to see coverage initiated in the days and weeks ahead.

On the earnings call the CEO was having a little fun with the “at least $100M in revenue for FY24”. It’s very clear they are guiding conservatively. They have over $40M in backlog, they have at least two large orders shipped in q4-23 that haven’t been considered realized revenue yet (see discussion above from @JabbokRiver42 Jabbok about the way in which AEHR treats their product revenue realization) and they have ample production capacity (read: no supply chain issues) to ramp up for a need that see is expanding right now.

Talk about right place, right time.

IMO the only issues worth pondering right now are the the 'ol “customer concentration” issue (as @anthonyms , I think it was, pointed out several weeks ago, you have either moved past this as a concern by now or you probably won’t) and the difficulty in having good visibility of your customers - especially when, to some degree, there is concern about a pending global economic slowdown lead by the US economy.


I see concerns like the above about Aehr, but Aehr is an entirely different kind of company. I truly didn’t even pay any attention to the above figures. What mattered to me was this kind of information (slightly shortened by me).

“In this quarter just completed, we received the first purchase order from a new silicon carbide semiconductor company for our production FOX-XP solution to be used for volume production wafer level test and burn-in of silicon carbide devices for electric vehicles, trucks, and train traction inverter modules.

The train traction inverter application represents an exciting new market for our FOX production test solutions due to the extreme reliability and length of service requirements of this application leading to prolonged test times. This new customer, a multinational industrial conglomerate and manufacturer of semiconductors including power semiconductors, is forecasting to grow their silicon carbide business significantly to meet the market demand.

“With the addition of this latest customer, we have significantly expanded our customer base by adding a total of four new silicon carbide customers this year. Each of these customers is already ramping or plans to ramp our products into high-volume production using our multi wafer test and burn-in systems.

“We also have multiple potential customers inquiring about our systems with the new high voltage option to test and burn-in gallium nitride (GaN) semiconductors for power conversion applications. The gallium nitride market appears to be a potentially significant growth driver for our systems and WaferPak full wafer Contactors, particularly for automotive and photovoltaic applications where burn-in appears to be critical for meeting the initial quality and reliability needs of those markets.

“We also see a major market opportunity with silicon photonics integrated circuits for optical chip-to-chip communication.

This is in addition to the current photonics transceiver market used in data and telecommunications. Multiple companies such as Intel, nVidia, AMD, TSMC, and Global Foundries have made announcements…

During the fiscal fourth quarter, we received our first order from a current major silicon photonics customer for a volume production FOX-XP configured to enable cost-effective production test of wafers of next-generation photonic integrated circuits, which can be used in new optical I/O or heterogeneous integrated packages. This customer is one of the world’s largest semiconductor manufacturers and we expect to receive orders for additional production systems as they increase production of these devices."

In other words the number of areas their tech can be used is exploding, their TAM is exploding, their number of large customers is exploding. Who in the world cares whether their revenue came in at $22.0 million or $22.3 million? It’s totally irrelevant to the investing thesis.

For disclosure, Aehr was my 2nd largest position, at 15.4%. That’s before figuring in the 17% that they are up today (as I write).