We recently published a list of 10 Best Tech Stocks to Invest In On the Dip. In this article, we are going to take a look at where Aehr Test Systems, Inc (NASDAQ:AEHR) stands against other best tech stocks to invest in on the dip.
Dan Romanoff, a senior equity research analyst at Morningstar provided insights into the current state of the technology sector, on October 1st, 2024. His analysis highlights significant challenges and opportunities for the industry. Romanoff mentioned that after a robust start to 2024, the tech sector experienced a slump in the third quarter. Despite this downturn, software and services companies have continued to report solid quarterly results, even as their stock prices have remained relatively flat. Semiconductor firms, while showing potential for recovery, are currently dragging down overall sector performance.
While discussing the sector-wise ranking of the US stock market based on the Q3 earning season, Romanoff pointed out that the technology sector has been the second-best-performing sector over the past year but ranks as the second-worst performer in the most recent quarter. Romanoff emphasizes that despite these fluctuations, there are positive long-term trends that could benefit the industry. He expressed confidence in several long-term growth drivers within technology, including cloud computing, artificial intelligence, and the expansion of semiconductor demand. He mentioned that these factors are expected to sustain growth in the sector even amidst short-term challenges.
Moreover, according to Romanoff, the Morningstar US Technology Index has risen by 32% over the past twelve months, outperforming the broader US equity market’s 24% gain. He notes that while the median US technology stock is fairly valued with a modest margin of safety, the sector trades at a slight premium on a market-weighted basis. He identifies semiconductors and hardware as being overvalued compared to software, which appears more attractive at present.
Romanoff also pointed out that generative AI is a significant force within technology. Companies are increasingly integrating next-generation AI capabilities into their products and services. This trend is particularly evident among cloud providers and semiconductor manufacturers. Despite some recent stock pullbacks for Nvidia, Romanoff believes there are still substantial investment opportunities in generative AI beyond just major players. He mentioned that he sees 34% growth in Gen AI Networking equipment spending through 2028. Romanoff also pointed out that the usage of chips and networking gear has grown together from 2022 to 2024 and he expects the trend to continue till 2028.
To curate the list of the 10 best tech stocks to invest in on the dip, we used the Finviz stock screener and CNN. Using the screener we shortlisted technology stocks that were down at least 25% on a year-t0-date basis, but analysts see a more than 25% upside. Once we had an aggregated list of the tech stocks fitting our criteria, next we cross-checked their analyst upside potential from CNN. Lastly, we ranked these stocks in the ascending order of the analyst upside potential. Please note that the data was collected on November 25, 2024.
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Aehr Test Systems (AEHR): Tapping into AI Accelerator Testing Amid Market Challenges
A technician overlooking a circuit board being built and tested for a semiconductor device.
Share Price: $12.80
Year-To-Date Performance: -48.70%
Analyst Upside Potential: 96.54%
Aehr Test Systems, Inc (NASDAQ:AEHR) specializes in providing testing solutions for semiconductor devices. Their main products include the FOX-P family of systems, which are designed to test semiconductor devices at different stages including Wafer Level Testing and Singulated Die Testing. The systems also perform “burn-in” tests, where devices are subjected to stress conditions to identify any early failures. This process helps ensure that the final products are reliable and function properly once in use.
While the revenue of Aehr Test Systems, Inc (NASDAQ:AEHR) was down 36.5% year-over-year to $13.1 million. It was actually above analyst expectations. The slow down in electric vehicle sales has impacted stock negatively and it has dropped 48.70% on a year-to-date basis.
However, what’s impressive about the company is the fact that the company has received its first orders to test AI accelerators. This means that the company has potentially entered a new hyper growth market. CEO, Gayn Erickson mentioned that they are currently in discussions with its first customer for gallium nitride (GaN) semiconductor devices, focusing on volume production testing and burn-in processes.
The company anticipates that the market for GaN devices will expand rapidly, with a projected compound annual growth rate (CAGR) exceeding 40%, potentially reaching over $2 billion in annual sales by 2029. Analysts are also betting high on the stock as their 12 month median price target points towards a 96.54% upside from current levels.
Overall, AEHR ranks 2nd on our list of best tech stocks to invest in on the dip. While we acknowledge the potential of AEHR to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AEHR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
