Aehr Test Systems Stock Soars on Artificial Intelligence (AI) Acquisition and Better-Than-Expected Annual Guidance

Aehr Test Systems (AEHR -2.06%) stock surged 13.4% in after-hours trading on Tuesday, following the semiconductor test and reliability qualification equipment supplier's release of its results for its fourth quarter of fiscal 2024 (ended May 31).

The stock's rise is attributable to Aehr's fiscal year 2025 revenue guidance beating Wall Street's consensus estimate and its announcement that it was acquiring a chip testing company focused on artificial intelligence (AI) chips.

Aehr's quarterly revenue and earnings exceeded analysts' expectations. However, this didn't come as a surprise to investors closely following the stock because the company released limited preliminary quarterly results on July 9. The next day shares rocketed up 24% due to the better-than-expected preliminary quarterly results.

Aehr Test Systems' key quarterly numbers

Data source: Aehr Test Systems. GAAP = generally accepted accounting principles. Fiscal Q4 2024 ended May 31. *Calculations by author.

Both the quarter's GAAP and adjusted results include the "impact of a tax benefit resulting from the release of the Company's full income tax valuation allowance of approximately $20.8 million," Aehr said.

For the last row of the chart, I calculated the approximate adjusted EPS with this tax benefit excluded. This is the number investors should consider for an apples-to-apples comparison.

Wall Street was looking for adjusted EPS of $0.10 on revenue of $15.4 million. Excluding the income-tax benefit, the company surpassed both estimates.

Bookings were $4 million for the quarter, and the company ended the period with a backlog of $7.3 million. Backlog has picked up considerably since the end of the quarter and was $20.8 million as of Tuesday's earnings release.

In fiscal 2024, Aehr generated cash of $1.8 million running its operations, down from $10 million in the prior fiscal year. The company ended the fiscal year with cash and equivalents of $49.2 million, up from $30.2 million in fiscal 2023. It had no long-term debt.

A promising AI-focused acquisition

On Tuesday after the market close, Aehr announced that it's acquiring Incal Technology, which it describes as a "privately held manufacturer of packaged part reliability/burn-in test solutions used by a significant number of leading Artificial Intelligence (AI) semiconductor manufacturers." Conveniently, Incal is located in the same Silicon Valley city as Aehr -- Fremont, California.

For the year ended June 30, Incal generated revenue of approximately $12 million. To put that in perspective, Aehr's fiscal 2024 revenue was $66.2 million, which was a record high.

Aehr is buying Incal for $21 million, consisting of $14 million in cash and 552,355 shares of Aehr common stock at $12.673 per share. The company expects the deal to close within 60 days.

Aehr expects this acquisition to be immediately accretive to its earnings, which is great news for investors.

What the CEO had to say

Here is part of what CEO Gayn Erickson said in the earnings release. His statements are always very lengthy, but well worth reading in full.

Although we saw customer pushouts of silicon carbide devices due to slower electric vehicle (EV) demand in the second half of our fiscal year, we achieved another record year for annual revenue for Aehr. ...

The silicon carbide market continues to be an enormous opportunity for Aehr as we see more auto suppliers committed to silicon carbide in their EVs, as well as roadmaps that are based on modules for their electric motor power inverters. ...

We are also seeing growing demand for silicon carbide devices beyond the EV market, such as solar, data center, and other industrial applications for power conversion.

We are also seeing traction with several emerging opportunities... One of the key new market opportunities we are focusing on is the growing demand for Artificial Intelligence (AI) processor test and burn-in at both the wafer level and the packaged part level. ...

Fiscal 2025 guidance

Data source: Aehr Test Systems. Fiscal 2025 ends May 31, 2025. YOY = year over year. *Calculation by author.

Management notably lowered its guidance during the past year, so it would make sense that it was very conservative in setting its fiscal 2025 outlook. In other words, I think management believes that its annual revenue will probably come in significantly higher than $70 million.

Aehr stock is looking more promising, but it's still high-risk

As I've written previously, Aehr is a high-risk stock due to its small size and high customer concentration level, but it's worth watching.

Aehr's growth potential is looking more promising given the EV market has recently started to rebound and the Incal acquisition should significantly expand the company's total addressable market.