Advanced Energy Industries Q2 Earnings Call Highlights

Key Points

• Record Q2 performance: Revenue rose 30% year over year to $574 million, while non-GAAP EPS increased 83% to $2.74 and operating margin reached a record 21.9%. Advanced Energy raised its full-year 2026 revenue-growth outlook to the low- to mid-30% range.
• Strong semiconductor and data-center outlook: Semiconductor revenue reached a record $278 million, and the company expects semiconductor revenue to grow nearly 50% year over year in the second half of 2026. Data Center Computing revenue rose 35% year over year, with full-year growth now expected to be at least 50%.
• Capacity and investment are increasing: Advanced Energy is expanding factories in Malaysia and Thailand, raising 2026 capital-expenditure guidance to $180 million-$195 million and increasing inventory to support customer ramps. It forecast approximately $640 million in Q3 revenue and expects gross margin to reach the 42% range in Q4.

Advanced Energy Industries NASDAQ: AEIS reported record second-quarter results that exceeded its guidance, citing stronger demand across semiconductor, data center computing, industrial and medical markets and factory execution that enabled it to capture upside during the period.

Revenue rose 30% year over year and 12% sequentially to a record $574 million. Non-GAAP earnings per share increased 83% from a year earlier to $2.74, while gross margin improved 380 basis points to 41.9%. The company also posted record operating income of $125 million, with operating margin reaching 21.9%.

“Demand strengthened in all of our target markets, and solid factory execution allowed us to capture upside within the quarter,” President and CEO Steve Kelley said. The company expects record revenue in both the third and fourth quarters and raised its full-year revenue-growth outlook to the low- to mid-30% range from a prior low- to mid-20% range.

Semiconductor Revenue Reaches Record

Semiconductor revenue totaled a record $278 million in the second quarter, up 27% sequentially and 33% from a year earlier. Kelley said demand for semiconductor equipment is being supported by leading-edge memory and logic spending, as well as increasing etch and deposition intensity.

The company expects semiconductor revenue in the second half of 2026 to rise nearly 50% year over year. Kelley said Advanced Energy is seeing customer acceptance of its plasma-power and system-power technologies, which it believes will support market-share gains in conductor etch, dielectric etch and deposition applications.

Advanced Energy said customers have validated yield and throughput benefits from its eVerest and eVoS plasma-power platforms at the leading edge. The company also cited new system-power design wins in test, atomic layer deposition and thermal-sensing applications.

During the question-and-answer session, Kelley said most of the expected semiconductor growth in the second half will come from existing products, although newer products are expected to make a larger contribution in 2027.

Data Center Outlook Improves

Data Center Computing revenue was $192 million, down 1% from the first quarter but up 35% year over year. Chief Financial Officer Paul Oldham said demand improved during the quarter as customers resolved downstream supply-chain constraints, positioning the business for a stronger second half.

The company now expects data-center revenue to grow at least 50% in 2026, following more than 100% growth in 2025. Kelley said the improved outlook reflects increased hyperscaler demand and additional program ramps.

Advanced Energy said it serves four hyperscale customers and is also pursuing “second-wave” customers outside the largest hyperscalers. Kelley said those customers generally require less engineering support and can be served with derivatives of existing technology platforms. He said second-wave programs won in 2026 are expected to begin ramping in 2027, with the potential over time to reach revenue comparable to that of the company’s largest hyperscale customer.

The company is also developing modular power solutions for 800-volt data-center architectures. It said early production units have received positive customer feedback, though it expects initial production revenue in late 2027 and a more meaningful ramp in 2028. Kelley said the technology transition could increase Advanced Energy’s power content per rack.

Margins, Capacity and Inventory Investments

Second-quarter gross margin included a benefit from tariff refunds. Oldham said the company received the large majority of expected IEEPA tariff refunds during the quarter, contributing $0.04 per share to earnings. Excluding that benefit, gross margin was 40.7%, above the company’s guidance range due to higher volume and favorable product mix.

For the third quarter, Advanced Energy forecast revenue of approximately $640 million, plus or minus $20 million, with gross margin of 41% to 41.5%. It expects non-GAAP earnings per share of $3.00, plus or minus $0.25, on 41 million shares outstanding. The company expects fourth-quarter gross margin to reach the 42% range.

Management said higher-value new products, volume growth and manufacturing improvements are expected to support further margin expansion. Kelley said the company has also taken pricing actions in mature product lines primarily to offset increased input costs, while seeking to remain price-cost neutral overall.

• Operating cash flow rose to $86 million in the second quarter.
• Capital expenditures totaled $50 million during the quarter.
• Full-year 2026 capital expenditures are now projected at $180 million to $195 million.
• Inventory increased by 10 days to 145 days as the company added strategic piece-part inventory to support customer ramps and manufacturing flexibility.

Kelley said the company is expanding output at its Malaysia factories and expects first production revenue from its new Thailand factory in the fourth quarter. Advanced Energy is qualifying major semiconductor and data-center customers at the Thailand facility. When fully built out, the company expects its factory network to have roughly $5 billion of revenue-generating capacity.

Industrial and Medical Demand Strengthens

Industrial and Medical revenue reached $80 million, increasing 11% sequentially and 17% year over year. The company said design wins are beginning to move into volume production and demand has improved across the broader market.

Kelley said distribution-channel metrics improved, with resales, orders and inventory showing progress. The distribution channel represents roughly half of Industrial and Medical revenue. The company is also working to reduce overdue backlog and expects to catch up with demand in the second half.

Management cited wins in therapeutic, imaging and life-science medical applications, along with test and measurement, factory automation, robotics, aerospace and defense. Kelley said Industrial and Medical bookings over the past three quarters were nearly double the level of the prior two years, supported by market recovery and new-product ramps.

Advanced Energy ended the quarter with $1.4 billion in cash and equivalents and net cash of $132 million after completing a $1.15 billion zero-coupon convertible note offering due in 2031. The company redeemed $438 million of its 2028 convertible notes and plans to redeem the remaining $136 million in September.

About Advanced Energy Industries (NASDAQ:AEIS)

Advanced Energy Industries, Inc is a global technology company specializing in precision power conversion, measurement, and control solutions. The company designs and manufactures a broad portfolio of products including high-voltage power supplies, RF and microwave generators, digital power controllers, reactive gas control systems, and thin film measurement instruments. These solutions enable advanced processes in semiconductor fabrication, flat panel display manufacturing, industrial coating, data storage, telecommunications and medical device production.

Founded in 1981 and headquartered in Fort Collins, Colorado, Advanced Energy has grown through strategic product development and international expansion.

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