Silicon Carbide And AI Memory Demand Will Support Long Term Semiconductor Equipment Upside

Catalysts

About Axcelis Technologies

Axcelis Technologies supplies ion implantation systems and related aftermarket services used in semiconductor manufacturing.

What are the underlying business or industry changes driving this perspective?

• Rising use of silicon carbide in electric vehicles and industrial power equipment is underpinning demand for Axcelis tools and upgrades in power devices, which can support system revenue and help sustain gross margin through higher value configurations.
• The ongoing move from 150 millimeter to 200 millimeter silicon carbide wafers, combined with customers adopting the Purion Power Series+ platform within the same footprint, is creating a multi year upgrade cycle that feeds CS&I revenue and can support net margins through a higher mix of services and field upgrades.
• Growing DRAM and HBM demand linked to AI related applications is driving ion implant needs across advanced memory nodes, and Axcelis exposure to both Korean and North American memory manufacturers gives the company a wider base for future system orders and earnings contribution.
• New products such as the Purion H6 high current ion implanter, designed for tighter implant control and higher productivity in advanced logic, memory and mature nodes, position Axcelis to compete for more high current slots and potentially lift revenue and gross margin as customers qualify these tools.
• A larger installed base and management’s focus on upgrades and service contracts in CS&I, which already produced record annual revenue and double digit growth in 2025, provide a recurring, higher margin revenue stream that can support operating margins and free cash flow through different phases of the semiconductor cycle.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on Axcelis Technologies compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Axcelis Technologies's revenue will grow by 15.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 10.7% today to 19.3% in 3 years time.
• The bullish analysts expect earnings to reach $256.5 million (and earnings per share of $8.02) by about August 2029, up from $92.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $193.4 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 31.1x on those 2029 earnings, down from 46.7x today. This future PE is lower than the current PE for the US Semiconductor industry at 52.6x.
• The bullish analysts expect the number of shares outstanding to decline by 1.71% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.23%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A larger tilt toward DRAM and HBM tools, which management links to AI related demand and cleanroom expansions through at least 2027, could drive higher system volume than today and push earnings above flat levels if customers follow through on the capacity plans described by Axcelis executives, affecting revenue and earnings.
• The long term build out of silicon carbide capacity for electric vehicles and industrial power, including upgrades from 150 millimeter to 200 millimeter wafers and broader adoption of the Purion Power Series+ platform, could sustain a multi year CS&I upgrade cycle that keeps service revenue and margins higher than a flat share price scenario implies, affecting revenue and net margins.
• China accounted for 42% of 2025 revenue and management describes continued fab expansion aimed at self sufficiency, so if this customer base maintains or increases tool purchases instead of staying muted, Axcelis could see stronger order flow than a flat outcome assumes, affecting revenue and earnings.
• The pending Veeco merger, which management expects to close in the second half of 2026 and describes as creating significant long term opportunities, could change the combined company’s scale, mix and cost structure in ways that support higher profitability than a flat share price view builds in, affecting operating margins and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Axcelis Technologies is $198.0, which represents up to two standard deviations above the consensus price target of $161.0. This valuation is based on what can be assumed as the expectations of Axcelis Technologies's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $198.0, and the most bearish reporting a price target of just $140.0.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $1.3 billion, earnings will come to $256.5 million, and it would be trading on a PE ratio of 31.1x, assuming you use a discount rate of 11.2%.
• Given the current share price of $140.27, the analyst price target of $198.0 is 29.2% 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.