Why Aehr Test Systems Stock Went on a Wild Ride in Early 2025

Aehr Test Systems: Navigating Market Shifts and Expanding Horizons

Aehr Test Systems has experienced a rollercoaster journey in 2025, with its stock price fluctuating dramatically throughout the year. Initially, the company was seen as a key player in the silicon carbide (SiC) wafer-level burn-in (WLBI) market, which historically accounted for a significant portion of its revenue. However, the slowdown in electric vehicle (EV) investment has created challenges for traditional end markets, prompting Aehr to explore new opportunities.

The Impact of Market Trends on Aehr

In the first half of 2025, Aehr's shares dropped by 22.2%, a figure that might seem alarming at first glance. However, this decline was followed by a remarkable recovery, with the stock rising by 77.4% in the latter part of the half-year. This fluctuation reflects the broader narrative surrounding the company and its end markets. The financial year for Aehr ends on May 30, and during the first six months of the calendar year, the company faced a challenging environment, particularly in the SiC WLBI market.

The CEO, Gayn Erickson, highlighted that SiC WLBI made up less than 40% of the company's revenue in fiscal 2025. This shift indicates that Aehr is no longer solely reliant on the SiC market, which had been a cornerstone of its business. The decline in sales from ON Semiconductor, a major customer, mirrored the broader slowdown in the SiC market, especially within the EV sector. High interest rates and a correction in previous EV spending trends have contributed to this downturn.

Diversification into New Markets

Despite these challenges, Aehr has taken proactive steps to diversify its revenue streams. In the third-quarter earnings report, the company announced its expansion into new markets, including the artificial intelligence (AI) processor burn-in market. Management noted that they were on track to generate 35% of their revenue from this emerging sector. This move marks a significant shift in strategy, as the AI market is perceived to be much larger than the traditional SiC markets.

Moreover, Aehr has identified four customers that contribute over 10% of its revenue, with three of these being new markets. These include the WLBI of gallium nitride (GaN) semiconductor supply to the automotive market. Additionally, the company secured a major hyperscaler as a first production AI customer in the packaged part burn-in (PPBI) market. While the specific names of these customers remain undisclosed, the slide deck includes notable companies such as Microsoft, Alphabet's Google, Nvidia, ON Semiconductor, and Infineon.

The Future Outlook for Aehr

Management's optimism about the AI end markets is grounded in the belief that these markets could be 3 to 5 times larger than the traditional SiC markets. This potential for growth is driving the current strength in the stock price. However, investors should consider the broader context before making any investment decisions.

While Aehr has shown resilience and adaptability, it's important to note that not all analysts are bullish on the stock. For instance, the Motley Fool Stock Advisor analyst team recently identified what they believe are the 10 best stocks to buy now, and Aehr Test Systems was not among them. The team highlights that the average return for their recommendations has been significantly higher than the S&P 500, with examples like Netflix and Nvidia showcasing substantial returns over time.

Investors should carefully evaluate the risks and opportunities associated with Aehr Test Systems. The company's ability to navigate market shifts and capitalize on new opportunities will be crucial in determining its future performance. As the landscape continues to evolve, staying informed and adaptable will be essential for any investor considering this stock.