Episode Details

Advanced Energy Industries, Inc. (AEIS) Q2 2026 — Reported after the close on August 3 (three months ended June 30, 2026). Revenue $574.1M, +30.1%, above the HIGH END of guidance. GAAP gross margin 41.1% vs 37.0%. GAAP EPS from continuing operations $1.29; non-GAAP EPS $2.74 vs $2.21 expected. Q3 guidance $640M +/- $20M and non-GAAP EPS $3.00 +/- $0.25 vs consensus of ~$576M and $2.46 — the raise is bigger than the beat. The stock closed at $296.38, up 119% in twelve months. The number nobody decomposed: revenue rose $63.1M sequentially and Semiconductor Equipment supplied $58.9M of it — 93% — on a record $278.3M. Data Center Computing, the entire reason this multiple exists, FELL sequentially, $194.2M to $191.5M. The quarter everyone will call an AI quarter was carried by the semi-cap cycle. THE CALL: HOLD (3/5, AN EXCELLENT QUARTER AND A BETTER GUIDE — AT A PRICE THAT ALREADY ASSUMES BOTH) — base-case value ~$245.0 vs ~$296.38 today. KEY METRICS: - THE CALL: HOLD 3/5 - fair value ~$245 vs the $296.38 close (-17%); Street average $423.88 (17 buy / 7 hold / 1 sell, 25 analysts, range $325-$535, +43%), so we DIFFER on the rating and are far more CAUTIOUS on the number. - DCF GRID (bear/base/bull x 9/10/11%): $187-161-141, $262-221-192, $320-266-228. Probability-weighted 25/50/25 gives $217 at 10% and $258 at 9%; we sit at $245. Base case: 2026 EXIT owner-earnings run-rate ~$420M (non-GAAP net income less stock comp, after tax) growing 15/15/10/8/6%, 3.5% terminal. REVERSE DCF: at $296.38 the operating business is priced at $11.74B, demanding ~$763M of owner earnings permanently - 82% more than today. - THE PRINT: revenue $574.1M (+30.1%); GAAP gross margin 41.1% (vs 37.0%); GAAP operating income $95.1M (vs $31.6M); non-GAAP operating margin 21.9% (vs 14.6%); GAAP EPS $1.29, non-GAAP EPS $2.74; non-GAAP net income $112.2M (+98%); diluted shares 37.8M to 42.3M (+12%). - BY END MARKET (Q2 2026 / Q2 2025 / Q1 2026): Semiconductor Equipment $278.3M / $209.5M / $219.4M (RECORD, 48.5% of revenue). Data Center Computing $191.5M / $141.6M / $194.2M (+35% y/y but -1.4% SEQUENTIALLY). Industrial and Medical $80.0M / $68.6M / $72.0M. Telecom and Networking $24.3M / $21.8M / $25.4M. - QUALITY OF THE BEAT: 120bps of the gross margin was a tariff refund (the 10-Q's words); stock comp $21.4M, +57% y/y; H1 operating cash flow $80.0M vs H1 capex $86.1M = FCF of -$7.1M; working capital consumed $149.1M, inventory +$126.9M to $538.1M. Revenue shipped to Mexico went from $41.1M (9.3%) to $124.1M (21.6%) while US revenue FELL from $141.7M to $132.3M. - BALANCE SHEET + TIMING: cash $1,396.5M (from $791.2M), net cash ~$132M. On May 18 sold $1.15B of ZERO-COUPON converts due 2031 (conversion $508.78; capped call to $678.38) and retired $440.5M of the 2028 notes; buyback SUSPENDED. Second-wave data center customers ramp in 2027; the 800V DC products ramp to production in 2028. What to watch: Bullish: Data Center Computing back above $220M in September (proving the dip was a qualification gap, not a plateau); the December guide above $700M; gross margin above 41% WITHOUT a tariff refund. All three and we move toward $320. Bearish: Semiconductor Equipment back below $260M; the 800V ramp slipping past 2028; inventory climbing while growth decelerates. Any two and we are nearer $180. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.