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    AEIS
    Earnings call· Jun 2026(Q2 FY26)

    ADVANCED ENERGY INDUSTRIES Q2 FY26 earnings call AEIS

    Aug 3, 2026 Source

    Executive summary

    Advanced Energy Q2 FY26 — Record Revenue and EPS, Strong Demand Across All Markets

    Advanced Energy delivered record Q2 FY26 results, driven by strengthening demand across all target markets and solid factory execution. The company raised its full-year 2026 revenue growth outlook to low to mid-30% range, with significant contributions from AI data center and semiconductor. Strategic investments in capacity and inventory are enabling the company to meet increasing customer demand and support future growth, with a focus on new product ramps and margin expansion.

    Highlights

    5

    • Record revenue of $574 million, exceeding the high end of guidance.

    • Non-GAAP EPS of $2.74, up 83% YoY and above guidance.

    • Gross margin improved 380 bps YoY to 41.9%, driven by higher volume and favorable mix.

    • Record operating income of $125 million and operating margin of 21.9%.

    • Increased full-year 2026 revenue growth outlook to low to mid-30% range, with strong contributions from Data Center Computing (at least 50% growth) and Semiconductor (almost 50% H2 YoY growth).

    Concerns

    3

    • Operating expenses of $115 million were slightly above guidance due to timing of program spending and variable costs.

    • Inventory increased 10 days to 145 days, impacting turns to 2.5x, due to strategic investments in piece part inventory.

    • GAAP tax rate of 18.2% was higher than non-GAAP due to nondeductibility of certain costs related to convertible note retirement.

    Guidance & targets

    24
    CategoryTargetConfidence
    Q3 FY26 Revenue
    $640 million, plus or minus $20 million
    high materiality
    High
    Q3 FY26 Gross Margin
    41% to 41.5% range
    medium materiality
    High
    Q3 FY26 Operating Expenses
    $120 million to $124 million
    medium materiality
    High
    Q3 FY26 Other Income
    approximately $5 million
    low materiality
    High
    Non-GAAP Tax Rate
    16% range
    medium materiality
    High
    Q3 FY26 Non-GAAP EPS
    $3, plus or minus $0.25
    high materiality
    High
    FY26 Revenue Growth
    low to mid-30% range
    high materiality
    High
    FY26 Semiconductor H2 Revenue Growth
    almost 50% year-on-year
    high materiality
    High
    FY26 Data Center Revenue Growth
    at least 50%
    high materiality
    High
    I&M Revenue
    continue to grow sequentially
    medium materiality
    Medium
    FY26 Gross Margin
    42% range
    high materiality
    High
    FY26 Operating Expenses
    $470 million range
    medium materiality
    High
    FY26 EPS Growth
    grow meaningfully faster than revenue
    high materiality
    High
    FY26 CapEx
    $180 million to $195 million range
    medium materiality
    High
    FY26 Free Cash Flow
    at or above 2025
    medium materiality
    High
    Thailand Factory First Production Revenue
    in the fourth quarter
    medium materiality
    High
    800-volt Products High-Volume Production
    2028
    medium materiality
    Medium
    New Product Revenue Acceleration
    accelerate our revenue growth
    medium materiality
    High
    Second Wave Data Center Customers Revenue Acceleration
    accelerate our revenue growth
    medium materiality
    High
    Data Center Computing Revenue Growth
    accelerating growth
    high materiality
    High
    Overall Growth
    over 20% growth
    high materiality
    Medium
    I&M Business Performance
    do very well
    medium materiality
    Medium
    Gross Margin
    over 43%
    high materiality
    High
    Thailand Factory Full Build-out Capacity
    roughly $5 billion of revenue-generating capacity
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Semiconductor
    Record revenue, shipping in line with underlying demand.
    		$278 million33%27%—
    Data Center Computing
    Revenue down sequentially as expected, but increased significantly YoY. Demand progressively improved in the quarter, setting up a higher second half.
    		$192 million35%-1%—
    Industrial & Medical
    Increased output to meet customer demand. Resales, orders, and inventory in the distribution channel all improved.
    		$80 million17%11%—
    Telecom & Networking
    Several customers evaluating rack power solutions for AI-related applications (second wave data center opportunities).
    		$24 million12%-4%—

    Operational metrics

    35
    Total revenue
    $574 millionup 12% QoQ, up 30% YoY
    Q2 FY26

    Record financial results, exceeding the high end of guidance.

    Non-GAAP EPS
    $2.74up from $2.09 QoQ, up 83% YoY
    Q2 FY26

    Exceeded the high end of guidance.

    Gross margin
    41.9%up 380 bps YoY
    Q2 FY26

    Improved due to manufacturing efficiency improvements and richer product mix.

    Gross margin (ex-tariff refunds)
    40.7%
    Q2 FY26

    Above guidance range, driven by higher volume and favorable mix of new products.

    Operating income
    $125 millionrecord
    Q2 FY26

    Record operating income.

    Operating margin
    21.9%up 730 bps YoY
    Q2 FY26

    Achieved a level not seen in many years.

    Adjusted EBITDA
    $137 millionup 84% YoY
    Q2 FY26
    Other income
    $5 millionversus breakeven in Q1
    Q2 FY26

    Mainly due to higher interest income and lower interest expense on convertible note offering.

    GAAP tax rate
    18.2%
    Q2 FY26

    Driven largely by nondeductibility of certain costs to partially retire 2028 convertible note.

    Non-GAAP tax rate
    14%
    Q2 FY26

    Below target of 16% to 17% due to favorable mix of earnings and discrete items.

    CapEx
    $50 million
    Q2 FY26

    Invested to expand capacity and capability, including accelerated production investments in Thailand.

    Dividends paid
    $4.1 million
    Q2 FY26

    Quarterly dividends.

    2031 convertible notes offering
    $1.15 billion
    May 2026

    Completed a 0% coupon convertible notes offering due in 2031.

    2028 convertible notes redeemed
    $438 million
    Q2 FY26

    Redeemed $438 million of 2.5% convertible notes due in 2028.

    Remaining 2028 convertible notes to be redeemed
    $136 million
    Q2 FY26

    Plan to redeem the remaining $136 million of the 2028 convertible notes in September.

    Total cash and equivalents
    $1.4 billion
    end of Q2 FY26

    Increased as a result of the convertible note offering.

    Net cash
    $132 million
    end of Q2 FY26
    Net working capital
    123 daysup 2 days
    Q2 FY26

    Driven by increased inventory, offset by improved DSO and DPO.

    Inventory days
    145 daysup 10 days
    Q2 FY26

    Investing in additional piece part inventory to support customer ramp plans and enable manufacturing flexibility.

    Inventory turns
    2.5x
    Q2 FY26

    Impacted by increased inventory.

    Days sales outstanding (DSO)
    63 daysdecreased 3 days
    Q2 FY26
    Days payable outstanding (DPO)
    85 daysincreased 5 days
    Q2 FY26
    EPS benefit from tariff refunds
    $0.04
    Q2 FY26

    Benefit to EPS from IEEPA tariff refunds.

    Operating expenses
    $115 millionup 11% YoY
    Q2 FY26

    Slightly above guidance range due to timing of program spending and variable costs.

    800-volt product efficiency
    98%
    current

    Focused on high efficiency in the 98% range for 800-volt solutions.

    Existing revenue-generating capacity
    $2.6 billion
    Q3 FY26

    Implied by Q3 guidance, prior to new Thailand factory production.

    Share gain target (2024 Analyst Day)
    $140 million
    long-term

    Target for share gain that management believes they are on track to beat.

    Target model gross margin
    43%
    long-term

    Reference to the company's target model for gross margin.

    Volume leverage on gross margin
    40 bps
    current

    For every $50 million of quarterly revenue, the gross margin impact is about 40 basis points.

    I&M distributor bookings growth
    80%up 80% YoY
    YoY

    Bookings for the distribution channel.

    I&M distributor resales growth
    40%up 40%
    YoY

    Resales for the distribution channel.

    I&M sales into channel growth
    45%up 45%
    current
    Design wins from website inquiries growth
    40%up 40% YoY
    H1 FY26 YoY

    Increased year-on-year in the first half of 2026.

    Semiconductor service and ion implants business share
    high teens or 20%
    current

    Share of the plasma business, growing slower than other parts.

    System business growth target (semi)
    $40 million
    by 2030

    Target for growth in the system business within semiconductor.

    Industry KPIs

    6
    MetricValueDetails
    Segment revenue growthSemiconductor: $278M; Data Center Computing: $192M; Industrial & Medical: $80M; Telecom & Networking: $24MUSD
    Design wins product cycle rampsMultiplewins
    Order visibility backlog policyWorking down overdue backlog
    Capacity expansion internal sourcing$5 billionUSD
    End market revenue mix organic growthSemiconductor: $278M; Data Center Computing: $192M; Industrial & Medical: $80M; Telecom & Networking: $24MUSD
    Operating margin incremental leverage21.9%%

    Product announcements

    2
    ProductTypeDetails
    eVerest and eVoS platformsupdate
    800-volt data center productslaunch

    Capital programs

    1
    Thailand factoryunderway
    Period spend: $50 million

    Benefit: roughly $5 billion of revenue-generating capacity across our factory network

    Accelerated production investments in Thailand were part of the Q2 CapEx. Working closely with large data center and semiconductor customers to qualify the factory, with first production revenue expected in Q4 FY26. When fully built out, it will contribute to the total network capacity.

    Risks & headwinds

    3
    Operating expenses slightly above guidanceQ2 FY26

    $115 million

    Increased inventory and impact on turnsQ2 FY26

    Inventory increased 10 days to 145 days, turns at 2.5x

    Mitigation: Strategic investment in piece part inventory to support customer ramp plans and enable manufacturing flexibility; healthy inventory with very little obsolescence risk; maintaining high factory staffing.

    Higher GAAP tax rate due to non-deductible costsQ2 FY26

    GAAP tax rate of 18.2%

    What to watch in Q3 FY26

    5

    Thailand factory first production revenue

    Q4 FY26
    CurrentQualifying big customers
    TargetFirst production revenue

    Why it matters

    Signals successful ramp of new capacity to support growth in data center and semiconductor markets.

    We are working closely with some of our largest data center and semiconductor customers to qualify our new Thailand factory, where we now expect first production revenue in the fourth quarter.

    Q&A highlights

    6

    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

    2 min read6 chapters

    Detailed Narrative

    01

    Market Strength and Execution

    Advanced Energy reported record Q2 FY26 results, with revenue and EPS exceeding guidance, driven by strong demand across all target markets. The company's solid factory execution, coupled with investments in capacity and piece part inventory, allowed it to capture upside within the quarter and keep pace with increasing customer demand.

    02

    Gross Margin Expansion

    Gross margin improved significantly to 41.9%, benefiting from manufacturing efficiency improvements, a richer product mix due to successful new products, and strategic pricing actions to offset input cost increases. Management has line of sight to over 43% gross margin, driven by structural improvements and new product mix.

    03

    Semiconductor Market Performance

    The semiconductor segment delivered record revenue of $278 million, up 33% YoY, with strong demand for leading-edge memory and logic, as well as increasing etch and deposition intensity. New plasma power platforms (eVerest and eVoS) are gaining customer validation for yield and throughput advantages, positioning AE for market share gains in 2027 and beyond. The company expects H2 FY26 semiconductor revenue to be up almost 50% YoY.

    04

    Data Center Computing Momentum

    Robust demand from hyperscalers led to an improved full-year 2026 revenue growth outlook of at least 50%, following more than doubling revenue in 2025. The company is actively pursuing opportunities with "second wave" data center customers, which are expected to accelerate revenue growth in 2027 and beyond. Development of 800-volt solutions, featuring 98% efficiency and high power density, is underway, with high-volume production expected in 2028.

    05

    Industrial & Medical Recovery

    The I&M market showed healthier demand, with revenue of $80 million, up 11% QoQ and 17% YoY. Key design wins are ramping to volume, and distribution channel metrics (bookings up 80% YoY, resales up 40%, sales into channel up 45%) all improved. The company expects to catch up📎 to overdue backlog in the second half of the year and sees strong performance in 2027.

    06

    Capacity Expansion and New Products

    Investments in R&D and a modular product approach are driving technology reuse and faster time-to-market. The new Thailand factory is expected to begin production revenue in Q4 FY26, qualifying big customers in data center and semiconductor. When fully built out, the factory network is expected to contribute to roughly $5 billion of revenue-generating capacity.

    AI-generated summary of the company’s earnings call. Not investment advice.