Overcapacity In SiC Production Will Limit New Orders

Key Takeaways

• Persistent overcapacity in SiC wafers and weak semiconductor demand threaten long-term equipment sales, revenue growth, and earnings visibility.
  
• Rising Chinese competition and global trade uncertainties risk eroding market share, margins, and stability in AIXTRON's core regions.
  
• Strong demand from AI, data centers, and EVs, along with technology leadership in key segments, positions AIXTRON for resilient growth and recurring high-margin revenue.

Catalysts

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

• Severe overcapacity in silicon carbide (SiC) wafer production, particularly in China, has created a market where entire factories of production tools are sitting idle or being scrapped. This persistent glut-especially for 6-inch wafers, which is estimated at two to three times world demand-will likely suppress future orders for new equipment, causing AIXTRON's SiC-related revenues to stagnate or contract for an extended period.
  
• The shift towards 8-inch SiC wafers is driving current demand, but this is fueled by technological upgrades rather than true end-market expansion. As customers exhaust this transition, demand is at high risk of reverting to baseline or declining, especially as many legacy 6-inch tools cannot be repurposed and new investments may slow further, hitting revenue growth and reducing visibility into forward earnings.
  
• Weakness in nearly all addressable semiconductor end markets except lasers-characterized by muted demand in power electronics (SiC, GaN), general optoelectronics, and LEDs-is likely to continue for an unpredictable period, given high customer idle capacity and uncertain end-market timing. As AIXTRON's growth is highly levered to cyclical semiconductor capex and first derivative order flow, this could result in several years of flat or negative revenue and operating leverage evaporating.
  
• Heightened risk of increasing domestic competition in China, driven by government initiatives to localize semiconductor manufacturing equipment, threatens to erode AIXTRON's market share and pricing power in its largest growth region. If domestic toolmakers meaningfully penetrate the 8-inch or next-gen tool market, AIXTRON may see declining margins and share loss, directly compressing profitability.
  
• Geopolitical fragmentation, regulatory uncertainties, and trade barriers-combined with already volatile order patterns, USD/Euro currency swings, and a weak macroeconomic environment-are likely to further disrupt cross-border sales, add compliance costs, and restrict access to key markets. These factors make any sustained improvements in net margin or earnings per share structurally fragile over the coming years.

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 decrease by 1.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 17.2% today to 14.3% in 3 years time.
• The bearish analysts expect earnings to reach €93.2 million (and earnings per share of €0.83) by about August 2028, down from €108.6 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 13.9x on those 2028 earnings, down from 14.1x today. This future PE is lower than the current PE for the GB Semiconductor industry at 15.5x.
• Analysts expect the number of shares outstanding to decline by 5.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.8%, as per the Simply Wall St company report.

AIXTRON Future Earnings Per Share Growth

Risks

• The rapid increase in demand for lasers and photonic integrated circuits driven by AI, data centers, and 5G network expansion is fueling sustained growth in the Optoelectronics segment, with AIXTRON's technology seen as the industry standard, which supports long-term revenue and margin expansion.
  
• The transition in power electronics from 6-inch to 8-inch silicon carbide wafers, together with increasing chip sizes for EV and power module applications, has created strong new demand for equipment upgrades; AIXTRON's G10 platform is favored due to its scalability across both wafer sizes, providing technology leadership and recurring revenue opportunities as new capacity is added.
  
• While current market softness is evident in several segments, AIXTRON maintains dominant positions in both the GaN and SiC power markets, is deeply embedded with major customers, and is expected to disproportionately benefit when end demand recovers, creating potential for significant upside to future sales and gross profit as utilization rates normalize.
  
• The growing installed base of AIXTRON's next-generation G10 tools forms a foundation for expanded aftersales revenue from service, spares, and upgrades; as equipment utilization climbs with market recovery, this recurring segment is expected to significantly support gross profit and stabilize earnings even in cyclical downturns.
  
• Industry shifts toward energy-efficient power supply architectures for AI data centers-including the adoption of GaN and SiC devices-position AIXTRON at the center of a structural market inflection, so emerging applications and market adoption could drive stronger-than-expected revenue, EBIT margin expansion, and long-term valuation uplift.

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 €651.3 million, earnings will come to €93.2 million, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of €13.63, the bearish analyst price target of €10.9 is 25.0% 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.