Executive Summary / Key Takeaways

• Strategic Diversification Fuels Growth: Aehr Test Systems (AEHR) has successfully diversified its revenue streams beyond its historical reliance on silicon carbide (SiC), with Artificial Intelligence (AI) processors now representing over 35% of fiscal 2025 revenue, up from zero in fiscal 2024. This strategic pivot, significantly bolstered by the Incal Technology acquisition, positions AEHR at the forefront of critical, high-growth semiconductor markets.
• Unrivaled Technological Leadership: AEHR possesses unique, patented technology for both wafer-level and packaged-part burn-in, particularly its FOX-XP systems and WaferPak contactors, which can deliver up to 3,500 watts of power per wafer and handle up to 2,000 volts. This capability is critical for the high-power, high-reliability demands of AI processors, SiC, GaN, and silicon photonics, offering a significant competitive moat.
• Compelling Value Proposition for AI: The ability to perform wafer-level burn-in for AI processors before expensive packaging offers substantial cost savings and yield improvements, a critical advantage as AI chips become increasingly complex and costly. AEHR is the only company globally offering both wafer-level and packaged-part burn-in solutions for AI processors.
• Operational Expansion and Financial Resilience: Despite a challenging market and temporary withdrawal of guidance due to tariff uncertainties, AEHR has completed significant manufacturing facility upgrades, increasing capacity by at least five times. The company maintains a strong balance sheet with $24.7 million in cash and no debt as of August 29, 2025.
• Broad-Based Growth Outlook: Management anticipates order growth across nearly all served markets in fiscal 2026, with SiC growth expected to strengthen in fiscal 2027. The total addressable market (TAM) for AEHR's systems and consumables is projected to reach $1 billion annually by 2027, driven primarily by AI and flash memory.

The Critical Role of Reliability in a Trillion-Dollar Semiconductor Future

Aehr Test Systems, incorporated in California in 1977, has evolved into a specialized provider of test and burn-in equipment, a critical function in the rapidly expanding semiconductor industry. Its core business revolves around ensuring the reliability and quality of semiconductor devices, a need that has intensified dramatically with the advent of generative AI, the electrification of transportation, and the global expansion of data center infrastructure. These megatrends are not only driving unprecedented demand for semiconductors but are also fundamentally increasing the performance, reliability, safety, and security requirements of these devices.

AEHR's foundational strength lies in its differentiated technology, particularly its FOX-XP, FOX-NP, and FOX-CP wafer contact and singulated die/module parallel test and burn-in systems, complemented by its proprietary WaferPak full wafer contactors and DiePak carriers. These solutions enable comprehensive testing and stabilization of devices in wafer form, a crucial step before they are integrated into complex packages or systems. The company's strategic acquisition of Incal Technology in July 2024 further expanded its portfolio to include packaged-part burn-in solutions like the Sonoma, Tahoe, and Echo series, providing a holistic approach to reliability testing. This dual capability—offering both wafer-level and packaged-part burn-in—is a significant competitive advantage, especially in the burgeoning AI processor market, where AEHR stands as the sole provider of such integrated solutions globally.

The semiconductor market, projected to grow from approximately $600 billion in 2024 to over $1 trillion by the end of the decade, underscores the vast opportunity for AEHR. Within this landscape, AEHR's competitive positioning is unique. While larger, more generalized automated test equipment (ATE) players like Teradyne (TER) and Advantest (ATE) offer broad testing platforms, AEHR excels in specialized, high-power burn-in applications. Its technology, particularly the WaferPak Contactor, provides superior alignment and reliability for full-wafer testing, differentiating it from probe card solutions offered by companies like FormFactor (FORM). Against test handler specialists like Cohu (COHU), AEHR's integrated systems offer greater efficiency in handling diverse device types, providing a more comprehensive testing solution. This specialized focus allows AEHR to command a strong position in niche, high-value segments where precision and reliability are paramount.

Technological Edge: Powering Reliability from Wafer to Package

AEHR's core differentiated technology centers on its ability to deliver massive amounts of power and current to semiconductor devices during test and burn-in, coupled with precise thermal control and high parallelism. The FOX-XP system, for instance, can test up to nine 300-millimeter AI processor wafers simultaneously, delivering up to 3,500 watts of power per wafer. This is a critical capability, as conventional wafer probers typically offer only around 300 watts of power. For silicon carbide (SiC) devices, AEHR's FOX-XP systems support high-voltage testing up to 2,000 volts across up to 18 wafers in a single system, doubling the capacity of its previous 9-wafer configuration. This high-voltage capability, combined with proprietary arc suppression technology, ensures devices can be stressed without damage.

The tangible benefits of this technology are substantial and quantifiable. For SiC, the cost of test at high voltage on AEHR's system, with a five-year capital depreciation, is approximately 0.5¢ per die per hour on an eight-inch SiC inverter wafer. This means 24 hours of burn-in can be achieved for just 12¢ per die. Such efficiency is crucial, as unburned-in SiC devices are prone to failure during the lifespan of an electric vehicle. For AI processors, moving burn-in from the system or heterogeneous package level to wafer level can result in significant cost savings and revenue increases. Even a 0.1% increase in yield for AI processors, which can be worth over $100 billion annually, is highly significant. This is because a single failed AI processor in a multi-chip package can lead to the discarding of the entire expensive package, including co-packaged memory (HBM) and the substrate.

AEHR's R&D initiatives are focused on extending these capabilities to new, high-growth markets. The company is developing a new fine-pitch MEMS-based WaferPak, capable of supporting high-density 3D NAND technology (up to >200 layers) and potentially DRAM testing. This innovation aims to address the increasing power per die and higher parallelism requirements in flash memory, where current test methodologies are breaking down. The new WaferPak can achieve attractive price points at extremely high pin counts and significantly finer pitches. Furthermore, enhancements to the Sonoma system include increasing power per device to 2,000 watts, boosting parallelism, and adding full automation with a new integrated package device handler. These developments are designed to meet the evolving needs of AI processor suppliers, test labs, and outsourced assembly and test houses (OSATs).

For investors, AEHR's technological differentiation translates directly into a strong competitive moat. Its patented solutions enable customers to achieve higher quality and reliability at a lower cost, particularly for mission-critical applications in automotive, data centers, and AI. This technological leadership allows AEHR to command premium pricing in specialized segments and secure long-term customer engagements, underpinning its market positioning and long-term growth strategy. The ability to offer a comprehensive, high-power, and automated solution for both wafer-level and packaged-part burn-in makes AEHR an indispensable partner for semiconductor manufacturers facing increasingly stringent reliability demands.

Financial Performance and Operational Resilience

Aehr Test Systems' financial performance in fiscal 2025 and the first quarter of fiscal 2026 reflects a company in strategic transition, successfully diversifying its revenue base while navigating market headwinds. For the three months ended August 29, 2025 (Q1 fiscal 2026), revenue was $10.97 million, a decrease from $13.12 million in the same period last year. This decline was primarily attributed to lower shipments of contactors due to softness in electric vehicle demand, partially offset by increased systems revenue and a $0.6 million increase in service revenue. Gross profit for Q1 fiscal 2026 stood at $3.72 million, down from $7.08 million year-over-year, with gross margin decreasing by 20.10 percentage points to 33.9%. This margin compression was mainly due to a less favorable product mix, higher assembly and warranty costs, increased tariffs on imported parts, and amortization of acquired intangible assets.

Despite these challenges, AEHR's strategic pivot is evident in its revenue composition. In fiscal 2025, AI processors burn-in accounted for over 35% of total revenue, a significant leap from effectively zero in fiscal 2024. This diversification reduced SiC's contribution to less than 40% of revenue in fiscal 2025, down from over 90% in fiscal 2024. The acquisition of Incal Technology played a pivotal role, with sales of Sonoma, Tahoe, and Echo packaged part burn-in systems contributing 44% of Q4 fiscal 2025 revenue.

Operating expenses saw an increase, with research and development rising by $0.5 million in Q1 fiscal 2026 to $2.85 million, driven by higher employment-related costs and increased headcount to support AI initiatives and memory projects. Selling, general, and administrative expenses remained consistent at $4.72 million. The company reported a net income of $2.08 million, or $0.07 per diluted share, for Q1 fiscal 2026, compared to $0.66 million, or $0.02 per diluted share, in the prior year period. This included an $0.8 million income tax benefit due to year-to-date losses in the U.S. and a $1.3 million Employee Retention Credit (ERC) refund, net of a $0.3 million service fee.

Liquidity remains robust, with cash, cash equivalents, and restricted cash totaling $24.7 million as of August 29, 2025. The company has no debt and believes its existing cash and anticipated funds from operations will cover its needs for the next twelve months. Significant capital expenditures in fiscal 2025, totaling $6.3 million, were directed towards remodeling the Fremont manufacturing facility, which has boosted manufacturing capacity by "at least five times". No further major facility expansion CapEx is anticipated in the near future. This investment underscores AEHR's commitment to scaling operations to meet future demand, particularly for high-power AI systems.

Outlook and Strategic Growth Drivers

Aehr Test Systems is poised for broad-based growth, driven by its strategic diversification and technological leadership in high-reliability semiconductor testing. While formal guidance for fiscal year 2026 has been temporarily withheld due to ongoing tariff-related uncertainty, management expressed confidence in order growth across nearly all served markets, with SiC growth expected to strengthen in fiscal 2027. This cautious approach reflects potential near-term delays in customer orders or supply chain disruptions, rather than a fundamental concern about long-term demand.

The AI market is projected to be the primary growth engine. The AI chip market, valued at over $60 billion in 2023, is expected to surge to over $600 billion by 2032, representing a CAGR of almost 30%. AEHR's unique position as the sole provider of both wafer-level and packaged-part burn-in for AI processors makes it a critical enabler for hyperscalers and AI processor suppliers. The company has already secured multiple follow-on volume production orders for Sonoma systems from a leading hyperscaler and has launched an evaluation program with a top-tier AI processor supplier for production wafer-level burn-in. These engagements, coupled with a strategic partnership with a world-leading OSAT for advanced AI testing solutions, signal significant future revenue opportunities.

Beyond AI, other segments are showing promising growth. The Gallium Nitride (GaN) market, projected to surpass $2 billion in annual device sales by 2029 with a CAGR exceeding 40%, has seen AEHR secure its first production order from a leading automotive semiconductor supplier. In the hard disk drive (HDD) market, a lead customer is ramping up, with AEHR shipping multiple FOX-CP systems for new read-write heads and anticipating additional purchases. Silicon photonics continues to grow, driven by optical chip-to-chip communication, with AEHR upgrading a major customer's system to 3.5 kilowatts per wafer and forecasting new systems for incremental capacity. Even in flash memory, AEHR's benchmarking project for wafer-level burn-in, featuring a new fine-pitch WaferPak, is progressing, with potential for first revenue as early as fiscal 2026 and volume orders in fiscal 2027. The NAND market alone is expected to exceed $80 billion in 2025, where a 1% yield improvement could amount to $800 million.

AEHR's total addressable market (TAM) for systems and consumables is projected to reach $1 billion annually by 2027. This outlook is supported by increased R&D investments to further enhance products, expand resources, and hire additional talent to serve its growing AI customer base and automation initiatives.

Risks and Challenges

Despite a compelling growth narrative, AEHR faces several risks and challenges. Ongoing tariff-related uncertainty, particularly concerning U.S. administration announcements, poses a risk of near-term delays in customer orders, shipments, or supply chain deliveries. While AEHR has implemented strategies like redirecting materials and shifting assembly to international locations to mitigate these impacts, the unpredictability of trade policies remains a concern.

Legal proceedings also present a challenge. Although a shareholder class action lawsuit and derivative complaints were dismissed in May and June 2025, AEHR is engaged in an intellectual property infringement lawsuit in China against Suzhou Semight Instruments Co., Ltd.. The outcome of this litigation is uncertain, and the company anticipates incurring additional legal expenses to protect its IP rights. Geopolitical and trade risks in China, coupled with the emergence of competitive offerings that AEHR believes infringe on its intellectual property, heighten the risk associated with bookings and revenue from Chinese customers.

Market volatility, particularly in the silicon carbide sector, has impacted AEHR's revenue, with growth outside of China expected to remain challenging before recovering in calendar 2026. While AEHR's diversification strategy aims to mitigate this, the cyclical nature of the semiconductor industry can still lead to variability in quarterly revenue if large system orders are delayed.

Conclusion

Aehr Test Systems stands at a pivotal juncture, transforming from a company heavily reliant on silicon carbide to a diversified leader in high-reliability semiconductor testing, with AI processors emerging as a dominant growth driver. Its unique technological capabilities, particularly in high-power wafer-level burn-in, provide a critical competitive advantage in an industry increasingly demanding stringent quality and reliability for complex, expensive devices. The strategic acquisition of Incal Technology and subsequent operational enhancements have significantly expanded AEHR's market reach and manufacturing capacity, positioning it to capitalize on the explosive growth in AI, GaN, silicon photonics, and flash memory.

While external factors such as tariff uncertainties and ongoing IP litigation present near-term challenges, AEHR's robust balance sheet, proactive risk mitigation strategies, and unwavering focus on technological innovation underpin its long-term investment thesis. The company's ability to offer unparalleled solutions for screening early-life failures in mission-critical applications, coupled with its expanding customer engagements and a projected $1 billion TAM by 2027, suggests a compelling trajectory for sustainable growth. Investors should closely monitor AEHR's execution in securing and ramping production orders across its diverse market segments, as its technological leadership and strategic foresight are set to redefine reliability testing in the semiconductor industry.