Axcelis Applied sciences is gearing up for a powerful end to 2024, and its inventory is filth low-cost proper now.
Nvidia (NVDA -2.19%) has owned the inventory market highlight in 2024, which is not shocking given its 145% year-to-date achieve. For a quick second in June, it even grew to become essentially the most useful firm on this planet when its market cap eclipsed $3.4 trillion.
It is unlikely Nvidia inventory will ship a comparable achieve within the second half of this yr, purely due to its sheer dimension and its valuation relative to its earnings. For that motive, traders is perhaps higher off different shares to drive their portfolios ahead.
Axcelis Applied sciences (ACLS 1.24%) is a important service supplier to the semiconductor trade. Its inventory has soared 800% during the last 5 years, but it is nonetheless extremely low-cost in comparison with its friends. Administration is forecasting a powerful second half of 2024, so here is why it could possibly be the perfect inventory to purchase proper now.
Axcelis will profit from synthetic intelligence
Nvidia designs highly effective graphics processing chips (GPUs) which have a number of functions, together with being utilized in information facilities that assist builders construct, prepare, and deploy synthetic intelligence (AI) fashions. Axcelis performs in a special house, manufacturing ion implantation gear that’s important to the fabrication of processors (CPUs), reminiscence (DRAM) chips, and storage (NAND) chips.
AI workloads require a lot of capability from all three of those chip varieties. As an example, all information middle GPUs designed by Nvidia have built-in reminiscence, and among the extra superior GPUs like the brand new Blackwell-based GB200 are additionally fitted with CPUs to spice up effectivity. Then there may be the truth that AI functions are transitioning out of simply being utilized in information facilities and are making their approach into gadgets, from computer systems to smartphones, which require considerably extra processing energy, reminiscence, and storage.
Micron Know-how says next-generation AI computer systems would require as much as 80% extra DRAM capability than conventional computer systems, and AI-enabled smartphones might require twice as a lot as their predecessors.
Axcelis CEO Russell Lowe just lately highlighted that very shift as a possible supply of future demand. He mentioned AI would require vital manufacturing capability expansions throughout the semiconductor trade, and that ought to translate to extra gear gross sales for Axcelis.
Axcelis is getting ready for its income development to reaccelerate
Axcelis generated $252 million in income through the current first quarter of 2024 (ended March 31), which was a 6.5% drop from the year-ago interval. That wasn’t a great end result, however the firm is coming off an unimaginable run of development with income growing by 23% in 2023 (to a report $1.13 billion), and 39% in 2022.
The semiconductor trade is cyclical, particularly in segments like computer systems and gadgets the place customers and companies would possibly solely improve as soon as each couple of years. That is a part of the rationale Axcelis’ development took a pause within the early phases of 2024, however it’s anticipated to be non permanent. Administration says income ought to improve within the second half of the yr in comparison with the primary half.
Plus, Axcelis is already guiding for income to hit a brand new report of $1.3 billion in 2025. To not point out, the corporate nonetheless has a large order backlog value $1.1 billion, so there may be loads of work within the pipeline within the meantime.
Picture supply: Getty Pictures.
Axcelis is filth low-cost in comparison with different chip shares
Axcelis inventory is up simply 9% in 2024 due to its income slowdown within the early phases of the yr. Nevertheless it’s up 800% during the last 5 years, but it stays low-cost. Based mostly on its trailing-12-month earnings per share of $7.57 and its present inventory worth of $135.59, it trades at a price-to-earnings (P/E) ratio of simply 17.9.
That is a giant low cost to the iShares Semiconductor ETF, which trades at a P/E ratio of 36.9. The ETF holds each main chip inventory together with Nvidia, so it is a terrific benchmark for the trade. However taking a broader view, Axcelis inventory can also be less expensive than the S&P 500 index, which trades at a P/E ratio of 24.
The AI alternative is gigantic. Superior Micro Gadgets says tens of millions of private computer systems fitted with its AI chips have already shipped, from main producers like Dell Applied sciences and HP. Microsoft additionally simply revealed an AI laptop of its personal, known as Copilot+.
Plus, Apple is gearing as much as launch its iPhone 16 later this yr, which ought to characteristic a robust new chipset to run its AI-centric iOS 18 working system. It additionally plans AI-related upgrades to its computer systems and tablets.
The purpose is, this pattern is just warming up, and there is each likelihood Axcelis’ order backlog grows within the coming years as chipmakers race to fill AI demand from all of these new sources exterior the information middle. By that lens, Axcelis inventory appears to be like like an absolute cut price on the present worth.
Anthony Di Pizio has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Superior Micro Gadgets, Apple, HP, Microsoft, Nvidia, and iShares Belief-iShares Semiconductor ETF. The Motley Idiot recommends the next choices: lengthy January 2026 $395 calls on Microsoft and quick January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure coverage.