What is the split between market growth and share gains in Industrial & Medical, and what is the status of M&A targets and the landscape for expansion?

The Industrial & Medical market has recovered from a 2-year inventory correction, with increased bookings and backlog. Market share gains are expected from new products and design wins. The company's primary M&A focus is to increase breadth in the fragmented I&M market, with valuation mismatches starting to close, making an acquisition likely in the near future. “I think the good news regarding Industrial & Medical is the market has recovered... we think we're in very good shape from a market standpoint... we think some of the valuation mismatch we've had in past years, those mismatches are starting to close and that will allow us to make an acquisition sometime in the not-too-distant future.”

What will the company's total revenue capacity be once current and Thailand capacity expansion projects are completed, and what is the timeline for these projects?

Current factory network investments (Malaysia, Philippines, Mexico) will result in over $2.5 billion in revenue-generating capacity by the second half of 2026. The new Thailand facility will add over $1 billion, bringing total capacity to over $3.5 billion once fully built out. Investments for Thailand will start late 2026, with initial production lines for data center and semiconductor. “we expect to be at a run rate or capacity revenue run rate of over $2.5 billion... once Thailand is built out, that adds more than $1 billion of revenue-generating capacity. So in total, I think we'll be in a position to ship in excess of $3.5 billion with our current factory network plus Thailand.”

Is the data center growth in Q1 and Q2 constrained by component availability or other factors, and what is the outlook for the full year?

Unconstrained forecasts for data center are strong, but customers are facing downstream constraints, which are tempering 2026 expectations. The company sees a bias to the upside for its 2026 forecast if these customer constraints are addressed. Advanced Energy is building inventory to be ready to respond quickly to changes in demand. “the unconstrained forecasts are quite strong, but our customers are dealing with downstream constraints. And so that's really tempering expectations for 2026... there's definitely a bias to the upside in our '26 forecast.”

AEIS

Advanced Energy (AEIS) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Information Technology· May 4, 2026

Source: earnings call transcript

Executive summary

Advanced Energy Q1 FY26 — Record Data Center Revenue and Raised Full-Year Outlook

Advanced Energy delivered a strong Q1 FY26, surpassing revenue guidance with record data center performance and achieving a 40.1% gross margin, the highest since 2019. The company raised its full-year revenue growth target to the low to mid-20% range, driven by strengthening demand across all markets, particularly semiconductor and data center. While Q2 data center revenue is expected to moderate due to customer-specific downstream constraints, the company is proactively managing inventory and capacity to capitalize on anticipated second-half growth and long-term opportunities, including the 800-volt transition and new semiconductor products.

Highlights

Q1 revenue of $511 million exceeded the midpoint of guidance, driven by record data center revenue.
Total revenue increased 26% year-over-year.
Non-GAAP gross margin reached 40.1%, the highest level since the Artesyn acquisition in 2019.
Non-GAAP earnings per share were $2.09, exceeding guidance and up 70% year-over-year.
Full-year 2026 revenue growth target raised from high teens to low to mid-20% range, with data center revenue growth expectation raised to mid-30% range.

Concerns

Industrial Medical revenue was down 8% sequentially due to factory prioritization to meet demand in other markets.
Data center demand volatility is expected to limit Q2 revenue sequentially.
Supply and cost challenges have begun to surface, including tightening supply and increasing input costs.

Guidance & targets

Category	Target	Timeline	Confidence
Q2 FY26 Revenue	$540 million, plus or minus $20 million high materiality	Q2 · FY26	High
Q2 FY26 Gross Margin	improve 20 to 50 basis points sequentially medium materiality	Q2 · FY26	High
Q2 FY26 Operating Expenses	$112 million to $114 million medium materiality	Q2 · FY26	High
Q2 FY26 Other Income	approximately $1 million low materiality	Q2 · FY26	High
Q2 FY26 Non-GAAP Tax Rate	16% to 17% low materiality	Q2 · FY26	High
Q2 FY26 Non-GAAP EPS	$2.18 and plus or minus $0.25 high materiality	Q2 · FY26	High
Full-year 2026 Revenue Growth	low to mid-20s high materiality	FY26	High
Full-year 2026 Semiconductor Revenue Growth (2H)	up over 30% from the prior year medium materiality	2H FY26	High
Full-year 2026 Data Center Revenue Growth	mid-30s high materiality	FY26	High
Full-year 2026 Industrial Medical Revenue Growth	revenue growth throughout the year medium materiality	FY26	Medium
Full-year 2026 Earnings Growth	meaningfully faster than revenue high materiality	FY26	Medium
Full-year 2026 CapEx	$170 million to $180 million medium materiality	FY26	High
Full-year 2026 Free Cash Flow	at or above '25 levels medium materiality	FY26	Medium
Long-term Gross Margin	greater than 43% high materiality	Long-term	High
Long-term Revenue Generating Capacity (current network)	over $2.5 billion medium materiality	Exiting FY26	High
Long-term Revenue Generating Capacity (with Thailand)	over $3.5 billion medium materiality	Once fully built out	High
Full-year 2026 Operating Expenses	$460 million range medium materiality	FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Semiconductor Customer forecasts strengthened considerably, expected to drive record performance in 2026 and continued growth in 2027. Benefiting from widespread customer acceptance of EBOs Everest and NavX plasma power technologies and an uptick in system power products.	$219 million	flattish	4%	—
Data Center Computing Delivered record revenue. Overall demand remains very strong. Expect second half revenue to be stronger than first half. Secured multiple new wins with second wave data center customers.	$194 million	102%	9%	—
Industrial Medical Revenue was down sequentially due to factory prioritization for other markets. Demand is strengthening, with bookings reaching the highest level since 2023. Secured multiple wins in therapeutic, diagnostic, life science, test and measurement, factory automation, and battery backup applications. Bookings: 14% sequential increase	$72 million	12%	-8%	—
Telecom and Networking Revenue grew to its highest level since 2023, driven by production ramp of several AI-related wins.	$25 million	16%	17%	—

Orderbook & backlog

Industrial Medical bookings 14% sequential increase Q1 FY26

Reached highest level since 2023.

Semiconductor backlog robust Q1 FY26

Management is very happy with the backlog.

Product announcements

Product	Type	Timeline	Details
EBOs Everest and NavX plasma power technologies	update	Meaningful revenue starting late 2026, more in 2027 and 2028
800-volt solutions	roadmap	Initial production revenue mostly in 2027, more meaningful in 2028

Capital programs

Capacity expansion (Malaysia, Philippines, Mexico) underway

Spent to date: underway

Benefit:over $2.5 billion in revenue generating capacity

Executing plans in response to strong demand environment. Expected to be at this capacity run rate exiting the year.

Thailand factory build-out underway

Period spend: initial investments in 2026 CapEx

Start: late 2026

Benefit:over $1 billion in additional revenue generating capacity (total over $3.5 billion)

New 500,000 square foot facility. Initial production slated for late 2026 or early 2027, with qualification builds for semiconductor and data center products kicking off this quarter. Investments pulled forward due to strength in data center and semiconductor.

Risks & headwinds

Downstream constraints affecting customer demand mix in Data Center Q2 FY26

demand volatility to limit revenue in Q2

Mitigation:Building inventory to respond quickly to changes in demand; customers working to address their supply constraints.

Supply and cost challenges Full year 2026

tightening in supply and increasing input costs

Mitigation:Well prepared to navigate dynamic environment; proactive inventory management and developing second sources for components.

Factory prioritization impacting Industrial Medical output Q1 FY26, catching up in Q2 and Q3 FY26

Industrial Medical revenue down 8% sequentially

Mitigation:Management giving personal attention to ensure catch-up on production; robust backlog provides clear demand signals.

What to watch in Q2 FY26

Data Center revenue growth

H2 FY26

Current Q2 moderating sequentially

Target Sequential growth in H2 FY26

Why it matters

Indicates resolution of customer downstream constraints and overall market strength, validating the full-year outlook.

While demand remains high, we continue to experience frequent customer changes in demand mix due to various downstream constraints. While we expect this demand volatility to limit revenue in Q2, we anticipate the ramp of several programs to support a stronger second half.

Find out whether AEIS delivers this. Inve re-checks your case every morning.

Q&A highlights

How is qualification and uptake progressing for new semiconductor products (Everest, EVOS, NAVEX) at leading edge and other nodes, and what milestones are being watched?

The company is seeing significant uptake of its leading-edge technologies (Everest, EVOS, NAVEX) due to improved yield and throughput. Customers are extending these improvements to other nodes and device types. Meaningful revenue from these new products is expected to start late 2026 and accelerate into 2027 and 2028.

“we're winning every battle that we're engaged in. So we're in a very good spot. And so what these customers see the improvements we can bring at the leading edge, they want to see those same improvements at some of the other nodes they operate at.”

asked by Jacob Moore · answered by Stephen Kelley

2 min read 5 chapters

Detailed narrative

Gross Margin Expansion and Efficiency Gains

Advanced Energy achieved a non-GAAP gross margin of 40.1% in Q1 FY26, marking the highest level since the Artesyn acquisition in 2019. This improvement was attributed to a better product mix and lower other cost of sales, highlighting structural improvements in operational efficiency and product portfolio.

Management expressed confidence in further expanding gross margins, with a long-term goal of exceeding 43% as higher-margin new products ramp to volume and manufacturing efficiency continues to improve.

Strategic Capacity Expansion Initiatives

The company is actively expanding its manufacturing capacity to meet strong demand. Investments in existing facilities in Malaysia, the Philippines, and Mexico are underway, projected to enable over $2.5 billion in revenue-generating capacity by the end of FY26. Additionally, Advanced Energy is accelerating the build-out of a new 500,000 square foot facility in Thailand, with initial production slated for late FY26 or early FY27, which will add over $1 billion in capacity, bringing the total to over $3.5 billion once fully built out.

Semiconductor Market Strength and New Product Adoption

The semiconductor segment saw customer forecasts strengthen considerably, leading to expectations of record performance in FY26 and continued growth in FY27. The company is experiencing widespread customer acceptance of its EBOs Everest and NavX plasma power technologies, which improve throughput and yield at the leading edge.

These technologies are also seeing wider adoption across multiple process generations and device types, with meaningful revenue contribution expected from late FY26 into FY27 and FY28.

Data Center Momentum and Next-Gen Solutions

Data Center Computing delivered record revenue in Q1 FY26, with overall demand remaining very strong. Advanced Energy is making solid progress on next-generation 800-volt solutions, sampling them to key customers. These solutions offer high efficiency (around 98%), power density, and reliability, and are expected to increase dollar content per rack.

Initial production revenue for 800-volt solutions is anticipated mostly in FY27, with multiple new wins secured with second-wave data center customers expected to ramp production in FY27.

Industrial Medical Market Recovery and M&A Strategy

The Industrial Medical market is showing signs of recovery, with bookings increasing 14% sequentially to their highest level since 2023. Demand is strengthening across test and measurement, aerospace and defense, factory automation, robotics, and AI-related applications. The company is actively pursuing M&A opportunities to expand its breadth in the fragmented Industrial Medical market, noting that valuation mismatches are beginning to close, which could facilitate an acquisition in the near future.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.