Axcelis Technologies, a small-cap stock specializing in semiconductor manufacturing equipment, has seen a significant rise in its stock price thanks to the growing demand for electric vehicles (EVs) and the next-generation chips required to power them. With the EV and renewable power markets expanding rapidly, companies like Axcelis that play a crucial role in these industries have been performing well.
Over the past 12 months, Axcelis stock has surged by 200%, including a staggering 100% increase since the beginning of 2023. This impressive growth can be attributed to the growing EV market and the demand for a specific type of chip necessary for power management in EVs.
Axcelis specializes in ion implantation, a process that involves introducing ions of a different element into a semiconductor wafer. This process, also known as doping, is significant in crafting power management chips, including silicon carbide (SiC) chips that exhibit conductivity properties suitable for high-voltage applications required in EVs and fast-charging infrastructure. Axcelis has witnessed a surge in sales of its equipment to SiC chipmakers in Europe and Asia, further contributing to its growth.
Investors have also taken notice of this boom in SiC chips, as reflected in the surges in stock prices of both Axcelis and Aehr Test Systems, a smaller player in the SiC chip market. However, while the prospects for SiC chips and companies like Axcelis and Aehr Test Systems remain promising, caution is advised. These companies operate in the industrial sector, which often experiences growth volatility. Before jumping on the bandwagon, investors should thoroughly understand the company’s offerings, evaluate the fairness of the stock’s price tag, and compare them to competitors in the market.
Axcelis currently trades at around 30 times trailing-12-month earnings per share (EPS) or 26 times trailing-12-month free cash flow. Looking ahead, Wall Street analysts predict a slightly lower valuation with Axcelis trading at 22 times EPS and 21 times free cash flow. While these valuations are not excessively expensive, there could be more appealing investment opportunities available.
One such opportunity is Applied Materials, the semiconductor equipment leader by revenue. Applied Materials, like Axcelis, benefits from the rise of ion implantation and is expected to experience sustained growth in the coming years. Additionally, Applied Materials operates in other areas of manufacturing equipment, and a return to growth in those segments could drive the company’s stock even higher. With Applied Materials trading at approximately 21 times expected EPS and free cash flow, offering a dividend and engaging in stock buybacks, it presents a compelling alternative to Axcelis.
Investors willing to bet on the advancement of the EV industry should keep Axcelis on their radar, but approaching the stock with caution is advisable at this stage. While Axcelis and companies like it may have bright futures, it is important to carefully evaluate the investment opportunity and consider alternative options in the industry. With the potential for volatility in industrial companies, understanding the business, assessing its valuation, and comparing it to competitors are important factors to consider before making an investment decision.
