After getting Axcelis Technologies (ACLS) Q2 2025 earnings update, time for a review. This article is an update on the one six months ago (Can This Former High-Growth Chip Stock Investor Favorite Bounce Back In 2025?).
Quick review on what they do: Axcelis is a provider of wafer fab equipment — the proverbial “picks and shovels” play of the semiconductor industry.
Axcelis’ biggest competitor is Applied Materials (AMAT) – which, notably, will release its own quarterly earnings this week. Amongst a lot of other stuff, AMAT supplies wafer fabs with what’s called ion implant machines. Axcelis is a specialist in ion implantation (it does primarily that, and not much else).
What is ion implantation? It fires plasma (ionized high energy gas) at a semiconductor wafer. Depending on energy level and the element or material being aimed at the wafer, the implant process can either build up material on the surface of the wafer (like icing a cake) or embed the material within the silicon substrate (filling a pastry with jelly or cream). It’s a crude analogy, but we’re told from within the industry that it roughly gets the point across.
Ion implantation is an important process, especially in power chips, as the introduced material affects the characteristics of the final chip (like its ability to conduct electricity, for example). Silicon carbide (SiC) was what led to the big runup in Axcelis’ financials a couple years ago.
But now with various power chip markets still waiting for inventory drawdown (like in EVs), Axcelis remains on hold to resume its growth story. How does this work?
Think of the supply chain like a river. Companies like Axcelis (and other fab equipment) as “upstream.” Before things can start moving upstream again, the “midstream” fabs need to start cranking out more chips (which increases utilization, which in turn drives purchases of more equipment). And fabs will crank out more chips as the “downstream” chip consumers work off excess inventory and start placing more new chip orders again.
The power chip end markets got clogged up back in 2023, which had a delayed effect on the upstream equipment providers. And another delay is currently ongoing. Axcelis reported a slight dip in the ion implant total market for 2024.
However, it still expects that market to grow between now and 2030 at a mid- to high-single-digit annual % rate. Markets like SiC, and especially for automotive (EVs and hybrids) are expected to contribute the most.
However, 2025 is going to be another down year for Axcelis as it continues to wait for fab customers to bring up their manufacturing utilization rates, and place orders for more equipment. As excpected, Axcelis’ financials were down year-over-year once again during the first half of 2025.
However, as we called out in February, it was possible that even with a depressed profit forecast, Axcelis stock had gotten really cheap.
Here are those results thus far for the first half of 2025, and the Q3 2025 outlook. Earnings per share are coming in much higher than we used as a starting input back in February.
Here’s an updated reverse DCF, one scenario that gets ACLS to fair value at today’s price of ~$75 per share. We’re assuming the company meets Q3 EPS guidance, and then does $1.00 in EPS in Q4 2025. The bar indeed looks very low for ACLS to clear.
There are still risks to this assumption, though. The auto and other power chip end markets may not pick up enough growth in the next year, and fab customers continue to delay new equipment purchases. Axcelis would also like to participate more in ion implant for memory and logic chips, an area where it generates very little revenue today. That future growth outlet may not materialize either (AMAT is a formidable competitor).
Nevertheless, if you’re on the lookout for cheap stocks, Axcelis appears to still be one such example right now. The market is going to need to see more evidence of a return to growth for the stock to really fire up again, and that will take time. But this could be a worthy inclusion in a small bets basket holding in a long-term portfolio.
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–End of ionized stream of thought–
