The semiconductor business has been red-hot over the previous few years, and it is not simply Nvidia and Superior Micro Gadgets delivering substantial positive aspects for buyers. The digital economic system is eternally increasing, and extra services and products require superior chip {hardware}, which is creating pockets of alternative for quite a few firms.
Axcelis Applied sciences (NASDAQ: ACLS) is one among them. Shares of the semiconductor service firm have rocketed greater by greater than 440% during the last 5 years, even after accounting for the latest 36% decline from its all-time excessive.
Axcelis simply reported its monetary outcomes for the 2023 full yr, and it delivered report gross sales and earnings. Buyers have been disenchanted by the corporate’s ahead steerage, however its inventory has now fallen up to now that it is buying and selling at an absolute discount valuation. This is why it could be time to purchase.
Axcelis is vital to the semiconductor business
Axcelis Applied sciences is valued at simply $3.9 billion, so it is tiny in comparison with the trillion-dollar big that Nvidia has become. However Axcelis does not make chips, it makes ion implantation tools that’s vital to the fabrication course of. Demand for chips continues to develop, so producers are increasing their manufacturing capability and that requires extra {hardware} from Axcelis.
In truth, the corporate is carrying a $1.2 billion order backlog proper now, which is close to a report excessive.
Axcelis’ report yr was pushed by the ability gadgets market. Energy gadgets regulate the switch {of electrical} vitality between the supply and the load — for instance, from a battery to the electrical car (EV) it powers. EVs are an unlimited supply of demand, particularly in the case of silicon carbide chemistries, which permit for lighter and extra energy-efficient energy gadgets. Axcelis is a specialist in that space.
The corporate expects the robust demand for EVs to proceed, particularly in China. But it surely’s additionally bracing for a comeback in mature course of markets like laptop processors and reminiscence (DRAM) and storage (NAND) chips. These have been weak since 2022 as a result of the business overproduced following the pandemic-driven provide chain disruptions, resulting in a provide glut that suppressed costs.
Axcelis believes synthetic intelligence (AI) might be a driver of the comeback. Senior Government Doug Lawson mentioned AI-enabled private computer systems, for instance, require considerably extra DRAM than conventional computer systems, which implies producers should broaden capability to fulfill a brand new wave of demand. Axcelis expects this to grow to be a tailwind within the second half of 2024 and into 2025, however chipmakers like Micron Know-how and Superior Micro Gadgets are displaying indicators the worst of the stock and pricing issues are already over.
In different phrases, these segments may bounce again sooner than anticipated.
Axcelis delivered report income and earnings in 2023
Axcelis delivered a record-high $1.13 billion in income throughout 2023, representing 23% year-over-year progress. The outcome topped the corporate’s newest forecast, which it raised twice all year long as a result of it routinely beat its expectations every quarter.
That translated to $7.43 in earnings per share (revenue), which was additionally a report excessive. That quantity grew by 36% in comparison with 2022, and cautious expense administration performed a task within the robust outcome. Axcelis’ working prices solely elevated by 19% yr over yr, which was slower than its income progress, so more cash flowed to the underside line as revenue.
The corporate’s ahead steerage was a priority for buyers. Administration is forecasting $242 million in income for the primary quarter of 2024, which might be a 5% year-over-year decline. Full-year income is anticipated to return in at the same degree to 2023, which suggests there probably will not be gross sales progress in any respect this yr.
Nevertheless, the corporate did forecast $1.3 billion in income for 2025, so whereas it’d take a breather this yr, the expansion story actually is not over.
Axcelis inventory is filth low cost in comparison with the remainder of the semiconductor business
As I touched on earlier, Axcelis inventory had an enormous run during the last 5 years regardless of at the moment buying and selling 36% beneath its all-time excessive. It is attainable the decline has gone too far.
Primarily based on the corporate’s $7.43 in earnings per share final yr and its present inventory value of $122.25, it trades at a price-to-earnings (P/E) ratio of simply 16.5. That is extraordinarily low cost in comparison with the iShares Semiconductor ETF which trades at a P/E ratio of 33.4 — and Axcelis is in that ETF, by the best way.
In different phrases, Axcelis inventory must greater than double simply to commerce according to its friends within the semiconductor business. The inventory can also be low cost in comparison with the benchmark S&P 500 index (P/E ratio of twenty-two.1) and the Nasdaq-100 expertise index (P/E ratio of 30.9).
Regardless of its weak ahead steerage, Axcelis has a observe report of beating its forecasts and it is nonetheless carrying a $1.2 billion order backlog, which is near a report excessive. If the corporate does see a larger-than-expected upswing out there for processors, reminiscence, and storage chips this yr, that would drive an upside shock to its monetary outcomes.
Even when 2024 is a flat yr for Axcelis, buyers prepared to carry the inventory into 2025 and past will probably do nicely in the event that they purchase in at its bargain-basement value proper now.
Must you make investments $1,000 in Axcelis Applied sciences proper now?
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Anthony Di Pizio has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Superior Micro Gadgets and Nvidia. The Motley Idiot has a disclosure policy.
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