Manufacturing equipment and systems provider Advanced Energy (NASDAQ:AEIS) announced better-than-expected revenue in Q1 CY2025, with sales up 23.6% year on year to $404.6 million. The company expects next quarter’s revenue to be around $420 million, close to analysts’ estimates. Its non-GAAP profit of $1.23 per share was 16.2% above analysts’ consensus estimates.
Revenue: $404.6 million vs analyst estimates of $390.1 million (23.6% year-on-year growth, 3.7% beat)
Adjusted EPS: $1.23 vs analyst estimates of $1.06 (16.2% beat)
Adjusted EBITDA: $65.4 million vs analyst estimates of $59.31 million (16.2% margin, 10.3% beat)
Revenue Guidance for Q2 CY2025 is $420 million at the midpoint, roughly in line with what analysts were expecting
Adjusted EPS guidance for Q2 CY2025 is $1.30 at the midpoint, above analyst estimates of $1.11
Operating Margin: 7.6%, up from 0.2% in the same quarter last year
Free Cash Flow was $15 million, up from -$9.3 million in the same quarter last year
Market Capitalization: $4.52 billion
StockStory’s Take
Advanced Energy’s latest quarterly results were propelled by strong momentum in the data center computing and semiconductor markets, as management pointed to multiple new design wins and product ramps. CEO Steve Kelley explained that the company shipped over 350 units of its next-generation semiconductor products, a fivefold increase from the prior year, and noted that data center revenues more than doubled year over year due to hyperscale customer demand. Kelley emphasized, “Our new products, which feature high reliability, high efficiency and high power density, are a good fit for power-hungry AI data centers.”
Looking ahead, management expects continued growth in data center and semiconductor segments, while remaining cautious about industrial and medical markets due to lingering inventory corrections and tariff uncertainty. Kelley highlighted that the company’s diversified manufacturing footprint and ongoing factory consolidation efforts position Advanced Energy to limit direct tariff exposure. He added, “Although macro visibility in the second half is limited, current customer forecasts support growth for the year, particularly in data center and semiconductor.”
Key Insights from Management’s Remarks
Management attributed the quarter’s performance to surging demand in data center and semiconductor markets, effective new product introductions, and operational improvements. The company also detailed steps to address tariff headwinds and invest in future growth.
Data center momentum: Data center computing revenue more than doubled versus the prior year, with multiple hyperscale design wins ramping to volume. Management cited strong customer pull for high-density, high-power solutions well-suited for AI workloads.
Semiconductor product traction: The company shipped over 350 qualification units of its new semiconductor products (eVoS, eVerest, NavX), with initial production ramps expected in the second half of the year. Kelley said these wins position Advanced Energy for share gains, especially in advanced logic and DRAM.
Operational efficiency gains: Gross margin improvement was supported by cost control and progress on factory consolidation, including the pending closure of the last China factory. This is expected to further benefit margins in the second half.
Tariff mitigation strategy: While tariffs present new headwinds, management believes their manufacturing footprint in Malaysia, the Philippines, and Mexico, along with USMCA-compliant production, limits exposure. Most direct tariff impact is expected in the industrial and medical segments.
Industrial and medical recovery tentative: Industrial and medical revenue declined amid ongoing channel inventory destocking and weaker demand, but late-quarter order rebounds suggest a potential bottom. Management remains cautious, as the pace of recovery may be affected by tariffs and broader economic uncertainty.
Drivers of Future Performance
Management’s outlook for the next quarter and full year rests on continued strength in data center and semiconductor demand, the successful ramp of new products, and disciplined cost management to offset tariff pressures.
Data center and AI demand: The anticipated growth in AI-driven data center investment is expected to drive further expansion, with new design wins and rapid upgrade cycles increasing product content per system.
New product ramp impact: Continued customer adoption and production scaling of next-generation semiconductor products are projected to support above-market growth and margin improvement, especially as qualification transitions to high-volume manufacturing.
Tariff and macroeconomic risks: The company acknowledges external risks from tariffs and economic uncertainty, particularly in industrial and medical segments, but believes diversification in manufacturing and proactive supply chain adjustments will mitigate most impacts.
Top Analyst Questions
Brian Chin (Stifel): Asked how Advanced Energy expects to outperform the broader semiconductor equipment market given flattish wafer fab equipment (WFE) forecasts. Management replied that its 10% growth outlook is driven by new product traction and strength in leading-edge logic and memory segments.
Scott Graham (Seaport Research): Questioned plans to improve the industrial and medical business, including whether acquisitions are needed for scale. CEO Steve Kelley indicated ongoing M&A interest and highlighted a record design win pipeline but cautioned that market normalization will take time.
Steve Barger (KeyBanc): Pressed for details on high-volume production potential for new semiconductor products. Management stated that ramping to high-volume could more than double shipments and increase dollar content per system, with most growth expected as customers launch advanced nodes.
Mark Miller (Benchmark): Asked if margin improvements are sustainable and if new products carry above-average margins. CFO Paul Oldham replied that new products generally have higher margins, and factory consolidation plus increased volume should help approach the company’s long-term margin goals.
Chris Grenga (Needham & Company): Inquired about the impact of distributor microsites on industrial and medical sales. Kelley noted early success and expects expanded digital distribution to boost design wins and accelerate growth in these segments.
Catalysts in Upcoming Quarters
For upcoming quarters, the StockStory team will closely watch (1) continued momentum in data center and semiconductor segments, particularly as next-generation products move from qualification to volume production, (2) the pace of recovery in industrial and medical markets as inventory destocking trends stabilize, and (3) the effectiveness of Advanced Energy’s tariff mitigation strategies, including manufacturing realignment and supply chain optimization. Progress in these areas will be key to sustaining top-line growth and margin expansion.
Advanced Energy currently trades at a forward P/E ratio of 24×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our free research report.
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