Advanced Energy Industries Talks Data Center Surge, 40% Margin Goal, and Thailand Capacity Plans

Key Points

• Advanced Energy said data center demand more than doubled last year and helped drive company revenue growth of 21%, with management guiding to high‑teens growth this year and improving semiconductor visibility for the back half of the year.
• The company remains on track to approach a 40% gross margin (up from ~35% at the start of 2024), with mix from new products expected to add 200–300 basis points100‑basis‑point tariff headwind; operating expenses are being managed to grow at about half the revenue rate.
• Management is pulling forward capital spending to meet faster-than-expected data center demand and higher power needs, with higher capex over the next “four to six quarters” and a new Thailand facility that is 100% incremental to current capacity and likely to begin manufacturing in early 2027.

Executives from Advanced Energy Industries NASDAQ: AEIS discussed shifting end-market dynamics, margin drivers, capacity plans, and product roadmaps during a company discussion hosted by Morgan Stanley semiconductor equipment analyst Shane Brett. Participants included EVP and CFO Paul Oldham and Senior Vice President of Strategic Marketing and Investor Relations Edwin Mok.

Oldham began with a reminder that the company had reported results on Feb. 10 and said there was “no update” to guidance beyond what had been reported, adding that investors should refer to SEC filings for risk factors.

End markets: data center outpaced expectations; industrial/medical recovering

Management said the industry environment has evolved meaningfully since the company’s analyst day about a year and a half ago. Oldham highlighted that data center growth has been faster than anticipated, stating the company “more than doubled” in that market last year, driven by new products and a revised strategy focused on differentiated applications.

In semiconductors, Oldham said the company saw a second consecutive year of growth last year and expects the segment to grow again this year. He added that broader enthusiasm is building around wafer fab equipment (WFE), particularly for the second half of this year and into next year.

Industrial and medical was described as the laggard, with a “tough start” last year. Oldham said the business bottomed in the first quarter, then grew sequentially each quarter, including 10% sequential growth in the fourth quarter and the first year-over-year growth in two years. He said the market is “largely normalized” and should grow steadily with macroeconomic conditions.

Oldham summarized overall momentum by noting the company grew 21% last year and is guiding to high-teens growth this year, with potential upside depending on market conditions.

Margins: progress toward 40% gross margin, with tariffs a new headwind

Asked about implications if revenue reaches prior longer-term targets earlier than expected, Oldham said gross margin has improved from roughly 35% at the beginning of 2024 to “almost 40%” exiting 2025. He said the company remains on track with its margin goals, but noted tariffs were not contemplated in the earlier model and represent roughly a 100-basis-point impact.

Oldham also said data center—while historically lower margin—has improved and is “approaching corporate average” after strategy changes. He cited manufacturing consolidation progress and said the largest gross margin lever going forward is mix from new products, which he estimated could add 200–300 basis points over time. Higher volumes were also cited as a continuing benefit.

On operating expenses, Oldham reiterated the company’s stated approach to grow operating expense at about half the rate of revenue. He said last year revenue rose 21% while operating expenses increased about 7%, and suggested the company may be “a little ahead” given it does not need major new foundational investments to support a path to $2.5 billion in revenue. Below the line, he mentioned interest income could be lower than prior models that assumed years of cash growth, and he noted stock performance has led to some share count dilution.

Capacity and CapEx: pull-forward for data center and power capability investments

On capital spending and readiness for a “dynamic growth environment,” Oldham described two primary drivers:

• Capacity growth, particularly due to faster-than-expected data center demand, which is pulling planned investment forward into late 2025, 2026, and possibly early 2027.
• Capability investments to support higher power levels, including more power in factories and R&D centers.

He said the company expects higher spending for the next “four to six quarters,” with moderation afterward, describing it largely as pull-forward tied to higher volumes. He added the Philippines expansion was part of the long-term plan, but may occur earlier given current growth.

Oldham also addressed the Thailand facility, saying it would be 100% incremental to the company’s current $2.5 billion revenue capacity. He said the factory buildout is essentially finished and would require about a six-month process to prepare for manufacturing after a “go” signal. The company has discussed using Thailand largely for “second wave” data center customers that qualify this year and ramp next year, with an opening “likely” in early 2027, though timing could shift. Oldham added Thailand could also support semiconductor capacity, noting the site was initially envisioned with semiconductors in mind.

Semiconductor: visibility improving; new products positioned for advanced nodes

Oldham said the company’s view of semiconductor momentum improved since earlier commentary and described the “water level” rising rather than a one-time pull-in. He said most of the company’s first-quarter growth is expected to come from semiconductors and expressed increased confidence that the second half of the year will be stronger than the first half, setting up for a strong 2027.

Mok said the company typically does not forecast WFE, but cited industry consensus pointing to strength in leading-edge foundry logic and DRAM, including HBM-related investment as well as spending tied to wafer starts and advanced-node transitions. He said leading-edge processes tend to carry higher dollar content for Advanced Energy. He contrasted that with NAND, where he said the company generally has lower content and expects growth largely from upgrades, while trailing-edge exposure is “healthy” and broadly viewed as flattish.

On product, Mok said Advanced Energy launched next-generation plasma power generator platforms eVoS, eVerest, and NavX in 2023 and has been working toward design wins that typically take years to translate to revenue. He said initial wins in conductor etch and deposition are beginning to generate revenue in 2025, with greater contribution expected in 2026 and beyond. He said early wins are tied to limited nodes such as 2 nanometer and “1c/1d” ramp nodes, with efforts underway for sub-2 nanometer and “1D and beyond.”

In dielectric etch, where Mok said the company has low or almost no share, he said Advanced Energy is working with multiple customers and has received positive feedback, but added there was “nothing to report” yet. He said potential wins could translate to revenue as early as 2027 and beyond.

Mok also discussed “System Power” offerings—powering other parts of semiconductor equipment such as heaters and system-level needs, including test and measurement and ATE—saying design wins are expected to begin generating revenue as early as this year. He referenced a prior goal to add $40 million of incremental revenue from this portfolio by 2030 and said the company believes it is on track.

Data center: growth outlook, “second wave” customers, and HVDC timing

In data center, Oldham addressed questions about why company growth might differ from hyperscaler capital spending trends. He said Advanced Energy’s more than 100% growth last year reflected significant new design wins and a focus on higher-precision applications, and that 2026 growth would not repeat the same step-change because many designs are now in place and the company is moving into next-generation wins. He also noted hyperscaler CapEx includes buildings, GPUs, and memory, while Advanced Energy’s content is a small portion of overall spend and is driven more by targeted application expansion than aggregate CapEx alone.

On visibility, Mok said the company uses customers’ demand planning as an input to its “up 30% growth” outlook and noted customers continue to cite volatility in their supply chains, which can shift demand and product mix rapidly. He said Advanced Energy is flexing manufacturing to meet those changes and is investing in capacity for long-term growth, with Thailand as an additional lever.

Oldham also described a margin opportunity in bringing “second wave” data center customers onboard, arguing that gross margin should be “the same or better,” while total contribution margin should improve because the company can repurpose leading-edge technology blocks with less incremental R&D and customization. He said R&D for the second wave would be “substantially less.”

In response to a question on high-voltage direct current (HVDC) architectures, Mok said development cycles typically take two to three years and the company is working on programs expected to ramp in 2027 and 2028, with some tied to HVDC. He said the company expects production revenue potentially in the second half of 2027, becoming more meaningful in 2028 and potentially 2029 for different variants. He added HVDC could increase power per rack and therefore Advanced Energy’s dollar content, and may expand the company’s addressable market.

Finally, Oldham said the company’s M&A focus remains oriented toward the fragmented industrial and medical market, while growth in data center and semiconductors is primarily driven by internal investment. He emphasized the strategic value of having “three strong pillars” and concluded that the financial community may be underappreciating the company’s diversification and “multiple vectors for growth,” particularly if all three markets grow over the next year or two.

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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