Advanced Energy Industries, Inc. (AEIS) | The Buildout — AI Infrastructure
The Verdict
Advanced Energy designs and builds precision power conversion equipment. It sells rack-level power supplies into hyperscale data centers and plasma and system power into the wafer-fab tools that make leading-edge chips. That puts it on the critical path of the AI buildout twice: power delivery inside the compute rack and power delivery inside the tool. It is not a chipmaker, a rack integrator, a cooling vendor or a data center operator. It is a component and subsystem supplier that gets paid when hyperscalers and chip equipment makers spend on capacity.
| Market Cap | — |
| Revenue (TTM) | $2.0B |
| Revenue Growth | +24.6% |
| EBITDA Margin (TTM) | 16.8% |
| Net Cash | $20M |
| Earnings Beats | 7 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Data Center Computing revenue more than doubled in 2025 and management says the business tripled in two years; the FY2026 guide was raised twice in two quarters.
- A second data center revenue pool is already won and sits outside the 2026 guide: multiple second-wave wins secured in 2026, with factory qualifications targeted for completion this year and production ramps in 2027.
- Semiconductor turned in Q2 2026, setting a record $278M, up 33% year-over-year, after being flat year-over-year in Q1, with second-half revenue guided up almost 50%.
- Operating leverage is showing: OpEx rose 11% year-over-year in Q2 2026 while revenue rose 30%, and management expects EPS to grow meaningfully faster than revenue for the year.
- The balance sheet carries $1.4B of cash and $132M of net cash after a $1.15B 0% coupon convertible due 2031 replaced $438M of 2.5% notes, with $136M more redeemed in September 2026.
What We’re Watching
- Customer concentration: FY2025's top three customers were 23%, 19% and 12% of revenue, 54% in aggregate, up from 37% for the top two in FY2024, while the second-wave diversification that would address it ramps until '28, perhaps '29.
- The binding constraint sits on the customer side, not on Advanced Energy's own supply: Q2 2026 Data Center revenue fell 1% sequentially as customers worked through downstream constraints, and the semiconductor constraint named in the record is cleanroom space at the customers.
- The stated network capacity stepped from in excess of $3.5B to roughly $5B in one quarter with no reconciliation on either call, a roughly $1.5B move in the largest forward-looking number in the story.
- Two one-quarter items to separate out: the Q2 gross margin included a non-recurring IEEPA tariff refund benefit, and inventory built to 145 days with turns near 2.5x on a supply chain the 10-K says includes parts obtainable only from a sole supplier or a limited group.
The thesis is strengthening on the evidence in the record, not weakening. Two demand engines turned or accelerated within one quarter, margins expanded, the balance sheet carries net cash, and management has converted roughly seven prior soft commitments into hard outcomes, each paired with a guidance raise. The honest offsets are that the growth depends on customers' schedules rather than the company's execution, that roughly a third of revenue sits in a market where the company deliberately serves four customers, and that the stated capacity ceiling moved by about $1.5B without explanation. The open question is whether the record results are run-rate or pull-forward.
Earnings Beat
Q2 2026 revenue was a record $574M, up 12% sequentially and 30% year-over-year and above the high end of guidance. Gross margin was 41.1%, up from 37.0% a year earlier. Non-GAAP EPS was $2.74, up 83% year-over-year, also above the high end.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $574M | $511M | $442M | +30.0% |
| Gross margin | 41.1% | 39.3% | 37.0% | +410bps |
| EBITDA | $112M | $87M | $47M | +136.4% |
| EPS | $1.28 | $1.58 | $0.67 | +91.8% |
| Semiconductor revenue | $278M | $219.4M | n/a | +33% |
| Data Center Computing revenue | $192M | $194.2M | n/a | +35% |
we've been growing at quite a rapid clip. And so we've certainly seen some inefficiency in manufacturing as we grow. We have high confidence that over time, we'll be able to bring those costs out as well.— Paul Oldham, CFO, 2026-08-03
Management tone: Management's posture shifted by action rather than adjectives. Between the Q1 2026 and Q2 2026 calls it re-guided the same fiscal year higher across nearly every operating line, pairing each revision with a raise instead of an on-track statement. On Q&A it was direct about why data center demand accelerated, about gross-margin sensitivity, and about the second-wave timeframe; it reframed questions on semiconductor outgrowth versus wafer-fab equipment and on 800V timing; and it declined to quantify data center product mix, customer inventory behavior and the capacity bridge. It volunteered soft spots unprompted, including manufacturing inefficiency during rapid growth, a reluctant pricing posture, and the roughly 25% of the semiconductor business management says is not equivalent to wafer-fab equipment.
Management Guidance
For Q3 2026, management guided revenue of ~$640M ±$20M, gross margin of 41% to 41.5%, operating expenses of $120M to $124M, other income of ~$5M, a 16% tax rate for the next several quarters, and non-GAAP EPS of $3.00 ±$0.25 on 41M shares. For the full year it guides revenue growth in the low-to-mid 30% range, data center growth of at least 50%, second-half semiconductor revenue up almost 50% year-over-year, gross margin improving with Q4 in the 42% range, OpEx of ~$470M, CapEx of $180M to $195M, and free cash flow at or above 2025 levels. The company stated on the call that targets beyond the current year should not be interpreted as guidance, which covers its comments about 2027 growth, 800V timing and second-wave parity in 2028–2029.
Trajectory
Revenue has climbed for four straight quarters, from $441.5M in Q2 FY2025 to $574.1M in Q2 FY2026, though the code-computed trajectory labels the direction stable rather than accelerating. The clearer change is in margins: the code-computed trends show gross, operating and EBITDA margins all expanding over the trailing year. Two markets explain the revenue move. Data Center Computing ran from $96.2M in Q1 FY2025 to $194.2M in Q1 FY2026 before easing to $192M on a customer-side constraint. Semiconductor was flat year-over-year as recently as Q1 FY2026 and then jumped to a record $278M in Q2. Working capital moved the other way: inventory reached 145 days with turns near 2.5x as management deliberately leaned into strategic piece-part inventory.
The Model
The model projects FY+1 revenue of $2,405M and EBITDA of $483M, a 20.1% margin, then FY+2 revenue of $3,005M and EBITDA of $682M, a 22.7% margin. The near term rests on the raised 2026 outlook, first Bangkok production revenue due in Q4 2026, and the 2027 ramp of hyperscaler and second-wave programs that have already been won. The further year depends on new semiconductor product revenue accelerating and on 800V high-volume production arriving in 2028, with second-wave revenue possibly reaching parity with the largest hyperscaler by 2028–2029.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $1.8B | $2.4B | $3.0B |
| YoY Growth | — | +33.7% | +24.9% |
| EBITDA | $237M | $483M | $682M |
| EBITDA Margin | 13.2% | 20.1% | 22.7% |
Projections are the median of 5 independent model runs. The model’s revenue sits 13.3% above analyst consensus.
For Q3 2026, management guided revenue of ~$640M ±$20M, gross margin of 41% to 41.5%, operating expenses of $120M to $124M, other income of ~$5M, a 16% tax rate for the next several quarters, and non-GAAP EPS of $3.00 ±$0.25 on 41M shares. For the full year it guides revenue growth in the low-to-mid 30% range, data center growth of at least 50%, second-half semiconductor revenue up almost 50% year-over-year, gross margin improving with Q4 in the 42% range, OpEx of ~$470M, CapEx of $180M to $195M, and free cash flow at or above 2025 levels. The company stated on the call that targets beyond the current year should not be interpreted as guidance, which covers its comments about 2027 growth, 800V timing and second-wave parity in 2028–2029.
What Could Go Right — and Wrong
- Second-wave data center qualifications complete on schedule in 2026 and convert into 2027 production ramps, adding a revenue pool that is currently zero in the guide.
- Data center revenue grows at least 50% in 2026 as guided and keeps growing in 2027 as hyperscaler programs ramp to volume.
- Gross margin continues climbing from the 40.7% ex-tariff-refund level toward the long-term frame of more than 43%.
- New semiconductor product revenue arrives as management describes it, significant starting in Q4 2026 and bigger in 2027 and 2028, supported by new cleanroom space coming online.
- 800V modules take meaningful content per rack, with initial production revenue in late 2027 and volume production in 2028.
- A hyperscaler program pause, deferral or re-architecture. Data Center Computing is roughly a third of revenue, the company serves four hyperscalers by choice, and Q2 2026 Data Center revenue already fell 1% sequentially on customer-side issues.
- Customer-side constraints persist or cleanroom space at the chip-fab equipment makers slips, delaying revenue timing that depends on customers' schedules rather than the company's execution.
- Input-cost inflation outruns the company's price-cost-neutral posture while growth-related manufacturing inefficiency persists, holding gross margin below plan.
- The deliberate inventory build proves wrong if demand shifts: 145 days of inventory, turns near 2.5x, a $48M build in Q1 2026 alone, sitting on a supply chain the 10-K describes as containing sole-sourced parts.
- Second-wave revenue slips beyond 2028–2029, leaving FY2025's top-three concentration of 54% in place and concentration the dominant feature of the story.
Looking Ahead
Over the next twelve months the checkable items arrive in sequence. Q3 2026 tests the raised guide, then Q4 2026 carries the first Bangkok production revenue and the point at which new semiconductor product revenue becomes significant. Second-wave factory qualifications are targeted for completion during 2026 ahead of 2027 ramps. Beyond that, management points to 800V initial production revenue in late 2027 and high-volume production in 2028, and has said it could see over 20% growth in 2027 with all markets up, a target it explicitly said should not be treated as guidance. The remaining $136M of 2.50% convertible notes due 2028 is redeemed in September 2026.
- Q3 2026Q3 results vs guide — Tests ~$640M revenue and 41–41.5% gross margin.
- September 2026Convertible note redemption — Redeems the remaining $136M of 2.50% notes due 2028.
- Q4 2026Bangkok first production — First production revenue from the 500,000 sq ft Bangkok plant.
- Q4 2026New semi products ramp — New semiconductor product revenue becomes significant, per management.
- Through end 2026Second-wave qualifications done — Factory qualifications completed ahead of 2027 production ramps.
- Late 2027800V initial revenue — First production revenue for the 800V DC converters.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $1.5B | $1.8B | $2.0B | +21.4% |
| Gross Margin | 35.6% | 38.1% | 39.7% | +248bps |
| EBITDA | $105M | $237M | $342M | +125.7% |
| EBITDA Margin | 7.1% | 13.2% | 16.8% | +610bps |
| Net Income | $54M | $148M | $219M | +173.8% |
| Free Cash Flow | $74M | $126M | $87M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)39.7%
- EBITDA Margin (TTM)16.8%
- Net Margin (TTM)10.8%
- ROIC15.4%
- FCF Conversion25.4%
- SBC / Revenue1.9%
The Company
Advanced Energy supplies what it calls highly engineered, critical precision power conversion, measurement and control solutions. Three product families carry the business. Plasma power products enable semiconductor and thin-film plasma processes such as dry etch and deposition. High and low voltage power products go into semiconductor equipment, data center computing, industrial production, medical and life science equipment, aerospace and defense, networking and telecommunications. Sensing, controls and instrumentation products handle measurement and calibration of power and temperature for industrial markets. Management frames the company as sitting in two large, fast-growing markets, AI data center and semiconductor, and splits the semiconductor business into plasma power, the traditional strength, and system power, the power between the wall and the machine.
The company is organized on a global functional basis and operates as a single reportable segment of power electronics conversion products, reporting no segment profit and loss. It speaks to four markets: Semiconductor, Data Center Computing, Industrial & Medical, and Telecom & Networking. Corporate headquarters are in Denver, Colorado, and global operations headquarters are in Singapore. It owns one manufacturing site, in Rosario, Philippines, and leases the rest, including a 500,000 sq ft Bangkok plant listed as planned manufacturing expected to be operational in 2026, plus sites in Penang, Malaysia; Santa Rosa, Philippines; Mexicali, Mexico; Littlehampton, UK; Lockport, New York; and Vancouver, Washington. Engineering, sales and R&D nodes include Fort Collins, Colorado; Milpitas, California; Wilmington, Massachusetts; Quezon, Philippines; Hong Kong; Sungnam City, South Korea; and Taipei, Taiwan. Manufacturing in Zhongshan, China ceased in 2025.
Business Segments
Competitive Landscape
Advanced Energy competes, and its filings say so directly. The FY2025 10-K names competitors by vertical: COMET Holding AG, Daihen Corp., MKS Instruments and TRUMPF Hüttinger in semiconductor equipment; Delta Electronics, Flex Ltd. and Lite-On Technology in data center computing; Cosel, Delta, MEAN WELL, TDK-Lambda, TRUMPF Hüttinger and XP Power in industrial and medical; and Delta, Kexin Communication Technologies and Lite-On in telecom and networking. Management describes its own approach as targeting sockets where it can be the sole source or one of two sources and avoiding commodity spaces that need less customer engineering input. A code-computed criticality assessment concludes that if the company could not deliver, hyperscalers and semiconductor equipment makers would shift to Vicor, Delta, MKS or others within roughly two to three quarters, causing minimal disruption to the AI buildout.
- MKS InstrumentsNamed in the 10-K as a semiconductor equipment competitor. Its own quarter shows semiconductor revenue guided to $550M, up more than 25% year over year, and capacity expansion for a $170B–$180B wafer-fab equipment market in 2027. The source's low-confidence wiring map also lists it as a prospective supplier of RF generator units, impedance matching networks and sensors, a dual relationship flagged as inference with no documented quote.
- Flex Ltd.Named in the 10-K as a data center computing competitor. Flex guides Cloud & Power Infrastructure to +65–75% growth in FY27 and +80%+ in FY28, says power is growing 70%+, and says it has an integrated power, cooling and compute capability that it has not seen anyone else offer.
- Delta ElectronicsNamed in the 10-K as a competitor in data center computing, industrial and medical, and telecom and networking.
- Lite-On TechnologyNamed in the 10-K as a competitor in data center computing and telecom and networking.
- TRUMPF Hüttinger GmbH + Co. KGNamed in the 10-K as a competitor in semiconductor equipment and industrial and medical.
Supply Chain
Advanced Energy buys components and subcomponents and sells power conversion hardware into hyperscale data centers and wafer-fab tool makers. The 10-K says some key parts may only be obtained from a sole supplier or a limited group, without naming either. No neighbor transcript named the company.
More on AEIS: Earnings recap