Geopolitical Tensions Will Cripple SiC GaN Demand

Key Takeaways

• Heavy reliance on Chinese demand and rising global competition expose AIXTRON to significant market contraction and ongoing margin pressures.
  
• Shifts toward alternative technologies, stricter regulations, and industry capital moving from hardware to software threaten future revenue and industry relevance.
  
• Market leadership in advanced materials processing technology and strong demand drivers position AIXTRON for sustained growth, increased profitability, and expanded market share.

Catalysts

Provides deposition equipment to the semiconductor industry in Asia, Europe, and the Americas.

• The strong dependence on demand from China for SiC and GaN power electronics exposes AIXTRON to a major risk of geopolitical decoupling, including the escalation of trade barriers and the risk of chip war restrictions. Any such disruption could sharply contract the company's largest addressable market, leading to a material, sustained decline in revenue growth.
  
• A marked slowdown in Western demand for both SiC and GaN equipment, combined with continued uncertainty around capacity expansion in EVs and auto electrification in major Western markets, suggests global SiC and GaN growth could stay flat or even contract for years. This stagnation, coupled with possible overcapacity in China, threatens both revenue expansion and margin stability.
  
• Heightened Chinese and US-based MOCVD competition, as well as accelerating customer consolidation in global semiconductor manufacturing, risks severe price pressure and loss of market share for AIXTRON. This would likely cause persistent gross margin compression and shrinking operating earnings long-term.
  
• Environmental regulation and anticipated carbon taxation will raise energy and compliance costs for equipment manufacturers. With capital allocation in the industry gradually shifting toward AI and software over hardware infrastructure, AIXTRON faces structurally increased costs and a ceiling on long-term equipment demand-pressuring both net margins and revenue growth.
  
• The increasing proliferation of alternative semiconductor manufacturing technologies and materials, such as nanoimprint lithography or emerging materials for next-generation applications, could steadily erode the relevance of MOCVD process tools. This would cap AIXTRON's addressable market well below optimistically modeled scenarios, impairing top-line revenue and cash flow over the coming decade.

AIXTRON Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on AIXTRON compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming AIXTRON's revenue will grow by 3.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 16.0% today to 13.8% in 3 years time.
• The bearish analysts expect earnings to reach €94.7 million (and earnings per share of €0.84) by about July 2028, down from €100.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 15.9x on those 2028 earnings, down from 16.9x today. This future PE is lower than the current PE for the GB Semiconductor industry at 16.9x.
• Analysts expect the number of shares outstanding to decline by 0.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.81%, as per the Simply Wall St company report.

AIXTRON Future Earnings Per Share Growth

Risks

• Surging global demand for photonic integrated circuits (PICs) and optoelectronic devices, driven by cloud, AI, and 5G/6G infrastructure, is fueling robust order growth for AIXTRON's MOCVD tools, especially as the company is winning major customer qualifications, which supports sustained revenue and operating earnings expansion.
  
• The accelerating adoption of electric vehicles, as well as a structural decline in silicon carbide (SiC) wafer prices, is making SiC-based power electronics more competitive, likely leading to a long-term increase in equipment sales and helping to grow AIXTRON's revenue and gross profit.
  
• AIXTRON's leadership and innovation in next-generation MOCVD technology, evidenced by strong uptake of its G10 series and successful product differentiation (such as enhanced uniformity and in-situ cleaning), positions the company to outpace legacy competitors, thereby supporting long-term market share gains and potential margin improvements.
  
• Investments in the company's new Innovation Center and expansion into 300-millimeter deposition systems position AIXTRON at the forefront of future demand cycles for advanced materials processing, which can further expand its addressable market and boost top-line growth.
  
• The company demonstrates operational flexibility and cost control, with measures such as inventory reductions and personnel optimization, resulting in improved cash flow and a pathway to higher future margins, which bodes well for the financial sustainability and earnings trajectory.

Valuation

• The assumed bearish price target for AIXTRON is €10.9, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of AIXTRON's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €22.0, and the most bearish reporting a price target of just €10.9.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €686.0 million, earnings will come to €94.7 million, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of €15.08, the bearish analyst price target of €10.9 is 38.3% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.