1 Super Semiconductor stock to buy Hand Over Fist for AI revolution

Artificial intelligence (AI) is mainly implemented using centralized data centers, but it is slowly migrating to computers and smartphones, which could lead to an increase in productivity in the economy. None of this would be possible without the advanced semiconductors provided by companies such as Nvidia, Advanced microdevicesand Micron technology.

Some smaller companies provide critical equipment and services to those chip giants, but tend to get less attention from investors. Axcelis Technologies (NASDAQ: ACLS)for example, it provides chipmakers with ion implantation equipment critical to the manufacturing process, and AI is already driving demand for the company’s products.

Axcelis shares are very cheap compared to its peers right now. Here’s why it could be a great buy as the AI ​​revolution gains momentum.

A unique way to invest in the AI ​​revolution

Ion implantation is a necessary part of the manufacturing process for central processing units (CPUs), memory chips, and power devices (which regulate electricity in high-current applications). The charging device segment has been particularly profitable for Axcelis over the past two years, thanks to the electric vehicle industry, which is constantly looking for ways to charge batteries faster and squeeze more kilometers from each charge.

But data centers built for AI present a new opportunity in this space because they consume a lot of energy. Some of Axcelis’ customers have started using silicon carbide-based power MOSFETs (metal oxide semiconductor field-effect transistors) for their AI infrastructure. Silicon carbide chemistry is more thermally efficient and more robust under heavy workloads than traditional silicon chemistry, but requires more implant, which creates a direct tailwind for Axcelis’ business.

AI chips are also a growing opportunity for Axcelis. Many data center graphics processing units (GPUs) designed by Nvidia come with built-in memory, which requires ion implantation. In addition, computers and devices require increased dynamic random access memory (DRAM) capacity to run AI software, so manufacturers may need to expand their manufacturing facilities, which creates organic demand for Axcelis equipment.

Preparing for a strong 2025

Axcelis posted record revenue and earnings in 2023 — well above its initial expectations — so beating those results in 2024 was always going to be a challenge.

Axcelis generated revenue of $256.5 million in the second quarter of 2024 (ended June 30). While that crushed management’s forecast of $245 million, it still represented a 6.3% decline from the same quarter in 2023. Wall Street expects the company to generate total revenue of just over $1 billion for the full year 2024, a marginal decrease from last year. .

The story continues

However, Axcelis’ guidance suggests it could return to growth in 2025, with revenue of $1.3 billion, a 24% year-over-year jump. The company currently has an order backlog of more than $1 billion, which supports expectations for a strong result in 2025.

Additionally, Axcelis has already started building inventory as it expects memory chip makers to begin adding more capacity in late 2024 and into 2025. Additionally, the company expects the silicon carbide power supply device market to grow by 25% per year through 2029, driven by demand for AI data centers and electric vehicles, which sets the stage for steady long-term revenue growth.

Axcelis stock is cheap right now

Despite the revenue slowdown, Axcelis is still very profitable. It offered $7.26 trailing 12 months earnings per share and btrading at a price-to-earnings (P/E) ratio of just 13.5.

That’s a 42% discount on S&P 500which trades at a P/E ratio of 23.8. It is also substantially cheaper than iShares Semiconductor ETFwhich trades at a P/E ratio of 32.8. In other words, Axcelis stock should outperform double only to trade in line with its peers in the chip sector.

The company’s lack of growth is the main reason its stock is trading at a very low valuation right now. To spark a recovery, it will need to prove to investors that it can meet its estimates for 2025. But if it can do so, investors who buy the stock today could stand to make a nice profit.

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Anthony Di Pizio has no position in any of the shares mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia and the iShares Trust-iShares Semiconductor ETF. The Motley Fool has a disclosure policy.

1 Super Semiconductor Stock to Buy Hand Over Fist for the AI ​​Revolution was originally published by The Motley Fool