Where do near-term earnings expectations differ?

  • Advanced Energy plans to report results for the quarter ending in September after the market close on 2 November. Citi expects quarterly revenue and earnings per share to be broadly in line with the midpoint of company guidance.
  • Citi is more optimistic about the quarter ending in December: it forecasts revenue of 707 million dollars and adjusted earnings per share of 3.56 dollars, approximately 2% and 4% above market consensus of 694 million dollars and 3.42 dollars, respectively. It expects revenue to grow 10% quarter over quarter, above consensus of 8%. All earnings-per-share figures exclude stock-based compensation and amortization.

What conditions will determine growth in 2027?

  • The company previously guided for revenue growth of approximately 35% year over year in 2026, including 50% year-over-year growth in its semiconductor business in the second half and 50% year-over-year growth in its data-center business for the full year. It also expects growth of more than 20% in 2027.
  • Citi is watching for updates to the company’s full-year outlooks for 2026 and 2027, as well as the pace of ramp-up among a second wave of data-center customers. Supply-chain readiness, potential price increases and scope for gross-margin expansion will also affect how growth translates into earnings.

Why does the transition to 800V create new opportunities?

  • At OCP, the company showcased new products for 800V DC power supply, including board-mounted power supplies, an architecture that supplies power directly to servers, and liquid-cooled power-supply racks. After discussions with the company, Citi is more confident in its positioning for this transition.
  • Citi believes a growing number of customers evaluating 800V deployment are engaging with the company, which is also increasingly involved in designing next-generation platforms. As 800V deployment progresses, this offers the company an opportunity to increase its product value per system; actual growth will depend on the pace of customer adoption and deployment.

What assumptions underpin Citi’s valuation?

  • Citi maintains its buy rating and 460-dollar target price, valuing the company at 27 times forecast calendar-year 2027 earnings per share, approximately 30% above its stated historical average of 21 times. The premium is based on AI-related revenue growth and a strong multiyear wafer-fab equipment investment cycle.
  • The main constraints on this assessment include slower AI investment, a digestion period for wafer-fab equipment investment, weaker-than-expected adoption of new products, slower data-center construction and intensifying competition.