Here's Why Aehr Test Systems Surged in June (Hint: It's AI related)

Key Points

• Aehr Test Systems is not a one-trick pony, and the company is impressively diversifying its revenue streams.

• The market is speculating that its new customers could prove lucrative and lasting.

Aehr Test Systems (NASDAQ: AEHR) stock rose by 35.5% in June, according to data provided by S&P Global Market Intelligence. The move comes as positive developments in the end markets that Aehr is targeting helped support the idea that the company can diversify its revenue streams and improve its growth in the process.

Aehr Test Systems changing end-market revenues

The company is best known for its test and burn-in equipment for the silicon carbide (SiC) wafer-level burn-in (WLBI) market. As management notes, this end market contributed 90% of Aehr's revenue in 2024. Unfortunately, at least from a near-term perspective, the key driver for Aehr's SiC WLBI solutions is the electric vehicle (EV) market and its associated charging infrastructure.

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Aehr's key customers in this market, which include ON Semiconductor, have come under pressure due to the ongoing relatively high interest rate negatively impacting EV sales. For reference, and by way of example, Wall Street analysts expect ON Semiconductor's sales to decline by 16.5% in 2025.

Consequently, Aehr needs to develop other markets to help offset weakness in its core SiC WLBI market. And the good news is it's not only doing that, but those markets are also in growth mode.

Aehr's new revenues

The progress was noted in the third-quarter earnings presentation in April with CEO Gayn Erickson outlining that SiC WLBI revenue is now tracking to "less than 40%, with artificial intelligence (AI) processors burn-in representing over 35% of our business in just the first year." Furthermore, in the third quarter, Aehr had four customers accounting for 10% of its revenue, with three of them coming from new markets for Aehr:

• WLBI for AI processors
• Packaged part burn-in (PPBI) "for qualification and ongoing process monitoring of AI processors"
• "WLBI of gallium nitride (GaN) semiconductors"

Image source: Getty Images.

Fast forward to June, and the positive momentum in AI and GaN WLBI spending has continued with Nvidia's well-received earnings report coming at the end of May. Moreover, Nvidia is working on developing a data center architecture for the next generation of data centers, starting in 2027, and has named GaN semiconductor company Navitas Semiconductor as a partner.

As such, the market is speculating that Navitas could be a potential customer of Aehr Test Systems.

What's next for Aehr Test Systems

The growth of alternative revenue streams is a significant plus for Aehr's investment case, and demand for SiC WLBI is likely to improve over time as EV investment is expected to increase. All told, the company's revenue and earnings remain highly cyclical, but its new end markets are helping to reduce its heavy reliance on EV spending, which has benefited the stock in June.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.