Key Points
Chip equipment and data center sales hit records, driving a 50% jump in quarterly revenue.
Costs grew far slower than sales, so profit rose much faster than revenue.
Rising inventory is holding cash flow well below reported earnings.
Advanced Energy Industries (NASDAQ:AEIS) grew third-quarter revenue 50% to about $696 million, and GAAP earnings per share more than doubled to $2.80. Shares rose about 10% in early after-hours trading. Sales are now growing much faster than costs, so profit is climbing fast. The weak spot is cash, which is not keeping up with earnings.
Key Numbers
- Revenue: $696 million, up 50% year over year.
- Semiconductor equipment revenue: $322 million, up 64% year over year.
- GAAP operating margin: 20.6%, up from 10.6% a year ago.
- Fourth-quarter revenue guidance: $710 million to $760 million.
What It Means
This is operating leverage at work: operating expenses rose just 17% from a year ago. Research and overhead costs don't grow with every order, so most of the extra sales dollars fell straight to profit. A higher tax rate kept net income from rising as fast as operating income.
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Most of the growth came from two markets tied to the same trend. Data center computing revenue rose 49%, on top of the chip equipment surge. Both depend on AI spending, since AI servers and the tools that make AI chips both need precise power. That makes the run strong but also concentrated.
The cost of growth is showing up on the balance sheet. Inventory has jumped 57% since December as the company builds for demand and ramps its Thailand factory. That ties up cash, and operating cash flow covered only a little more than half of net income this quarter.
What to Watch Next
Watch whether inventory starts turning back into cash next quarter. A second check is whether Q4 revenue lands in the upper half of guidance.
David Kretzmann has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.