Silicon Carbide Revolution Fuels Growth In EVs, AI, And Global Semiconductor Markets

Key Takeaways

• Demand for Axcelis' systems in EV-related markets and applications like Silicon Carbide points to significant revenue growth potential.
  
• Geographic expansion efforts, especially in Japan, and tapping into emerging Silicon Carbide and memory segment markets signal further revenue growth opportunities.
  
• Volatile macroeconomic conditions and execution risks in key segments may impact Axcelis Technologies' earnings growth and revenue consistency.

Catalysts

Designs, manufactures, and services ion implantation and other processing equipment used in the fabrication of semiconductor chips in the United States, Japan, Europe, and Asia Pacific.

• Strong demand for Axcelis' implantation systems in the Silicon Carbide market aimed at EVs and hybrid EVs suggests significant revenue growth potential as the market for these vehicles expands.
  
• Expansion and capacity increases in Silicon Carbide applications to meet domestic production goals for the EV market indicate continued revenue increases from this segment.
  
• The emergence of Silicon Carbide-based trench MOSFET products for AI data centers presents an opportunity for Axcelis to tap into the high implant intensity associated with trench technology, potentially boosting revenue.
  
• With the expected recovery of memory spending as customers need to add capacity to meet global compute and storage needs driven by AI, EVs, Internet of Things, and the growth in electronic devices, revenue from DRAM and NAND applications is anticipated to increase.
  
• Geographic expansion, particularly in Japan, where Axcelis focuses on increasing market penetration and leveraging customer relationships, could lead to revenue growth as the company capitalizes on global semiconductor market needs.

Assumptions

• Analysts are assuming Axcelis Technologies's revenue will grow by 4.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 21.5% today to 18.4% in 3 years time.
• Analysts expect earnings to reach $234.1 million (and earnings per share of $8.37) by about September 2027, down from $239.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.3x on those 2027 earnings, up from 13.2x today. This future PE is greater than the current PE for the US Semiconductor industry at 25.8x.
• Analysts expect the number of shares outstanding to decline by 0.61% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.94%, as per the Simply Wall St company report.

Risks

• Market reliance on the recovery of memory demand to meet future revenue targets may not materialize as expected, impacting overall earnings growth.
  
• Softness in Silicon IGBT applications, despite the strong demand for Silicon Carbide, could limit revenue growth in the power segment.
  
• The potential moderation in demand for General Mature segment products in the second half, dependent on macroeconomic factors, could adversely affect revenue consistency.
  
• Execution risks in capitalizing on opportunities within the Advanced Logic and memory segments could hinder the ability to achieve targeted revenue growth.
  
• Volatile macroeconomic conditions and customer spending patterns, particularly in consumer and industrial markets, could negatively affect demand for the company's products, impacting net margins.

Valuation

• The analysts have a consensus price target of $153.25 for Axcelis Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $175.0, and the most bearish reporting a price target of just $128.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.3 billion, earnings will come to $234.1 million, and it would be trading on a PE ratio of 26.3x, assuming you use a discount rate of 7.9%.
• Given the current share price of $96.98, the analyst's price target of $153.25 is 36.7% higher.
• 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.