Advanced Energy (AEIS) Q2 FY26 earnings call: guidance and Q&A

What's driving the increased positivity in data center, how have customer conversations evolved, and what does accelerating growth into 2027 mean?

Management noted that hyperscalers have resolved supply chain issues, leading to a more bullish outlook for H2 and 2027. Three growth vectors for 2027 include hyperscale wins ramping, second wave customers (9-12 month ramp from engagement to production), and 800-volt products (initial revenue late 2027, meaningful ramp 2028).

“what's changed in the past 3 months is that our customers have been successful in removing some of the supply chain issues that we faced 3 months ago. So for us, that means we've been able to grow more bullish on our second half revenue and our 2027 revenue in data center.”

asked by Matthew Prisco · answered by Stephen Kelley

How does AE expect to outgrow WFE in 2026/2027, and what is the traction for new products?

Management believes AE is better positioned than ever to gain share due to the acceptance of new plasma and system power technologies. They are ahead of the share gain targets published at the 2024 Analyst Day, driven by strong customer pull for yield and throughput advantages at leading-edge nodes. System power products have faster development cycles, contributing to gains on two fronts.

“I think right now, I think we're better positioned to gain share than at any other time in our history. And I say that because of the acceptance of our new technologies, both in plasma power as well as system power.”

asked by Matthew Prisco · answered by Stephen Kelley

Can you discuss your inventory situation, particularly the investment in piece part inventory, and how it compares to past component availability issues?

Management stated they learned from COVID shortages, bringing on second sources and building strategic inventory to avoid constraining customers or revenue. Current inventory is considered 'healthy' with low obsolescence risk. High factory staffing is maintained for flexibility. Improvements in accounts payable and receivable have mitigated the impact on working capital.

“Our current situation is we don't want to constrain our customers, and we don't want to constrain our revenue due to shortages of piece parts. So we're leaning into strategic inventory as lead times extend for these components and the demand that we see continues to increase.”

asked by Joseph Quatrochi · answered by Stephen Kelley

Why is AE's 800-volt DC revenue expected later (late 2027/2028) compared to competitors shipping earlier?

Management emphasized AE's technology leadership in 800-volt solutions, which are modular, high-efficiency (98%), high power density, and reliable. They have received high interest and positive feedback. Initial production revenue is expected late 2027, with a more meaningful ramp in 2028, and they believe 800-volt will coexist with 12V and 48V architectures.

“So 800 volt, we've got some interesting products, and there's been a high level of interest in our solutions at multiple customers. We see this as an opportunity for AE to increase our contact -- or content per rack.”

asked by Sreekrishnan Sankarnarayanan · answered by Stephen Kelley

How much earlier are customers engaging with AE in the data center design cycle, and does this extend to broader architecture beyond rack-level products?

Management stated that most products are rack-level. The fast development cycles in AI data centers necessitate close partnerships with hyperscalers, maximizing reuse. There's typically a 9-12 month lag from final design to full ramp. The number of projects per customer has increased, and multiple facilities are qualified for production, indicating deeper engagement.

“I think what we've seen is that we've partnered closely with our key hyperscaler customers because there's very little time to perfect the solution. So what we've done is maximize reuse and work very closely with the customer to develop a solution that meets their next-generation needs.”

asked by Steve Barger · answered by Stephen Kelley

Is AE strengthening its position with other hyperscalers, and how does it balance resources between its largest hyperscaler, other hyperscalers, and second wave customers?

Management clarified that resources are focused on a select group of hyperscalers due to their engineering intensity. The strategy is to augment business with these selected hyperscalers by targeting 'second wave' customers, who are less engineering-intensive and allow for faster derivative development using existing technology blocks. This approach avoids diluting resources and diversifies the customer base without broadly expanding hyperscaler exposure.

“And so that's why to augment our business with the selected hyperscalers, we've chosen to go with the second wave approach because the second wave customers aren't nearly as engineering intensive as the hyperscalers are.”

asked by Elizabeth Sun · answered by Stephen Kelley