Advanced Energy Industries (NASDAQ:AEIS) executives said the company is seeing broad-based strength across its semiconductor, data center and industrial and medical end markets, while also pointing to improving margins and additional manufacturing capacity expected to come online later this year.
Speaking at a company news event, President and Chief Executive Officer Steve Kelley said the first quarter was “a good quarter” for Advanced Energy, with revenue and profitability above the midpoint of the company’s guidance. He also highlighted that the company crossed a 40% gross margin threshold, a level he said Advanced Energy had been working to exceed during his five years as CEO.
Semiconductor Orders and Backlog Strengthen
Kelley said Advanced Energy saw a “large increase” in orders from semiconductor customers during the first quarter and now has a strong backlog extending through the remainder of this year and into 2027. He said the company is hearing that semiconductor strength could last into 2028.
For the semiconductor business, Kelley said Advanced Energy expects greater than 20% year-over-year growth in the current quarter, with the second half expected to be more than 30% better than the second half of 2025. He said demand is strong enough that the company plans to open its Thailand factory a quarter early, with semiconductor production expected to begin there in the fourth quarter.
Kelley also discussed the company’s newer semiconductor products, including eVerest, eVoS and NavX, which were introduced in mid-2023. He said the products have been designed into leading-edge processes in both logic and memory, and that revenue from those wins is beginning to appear.
“We feel very good about our ability to grow market share in semiconductor,” Kelley said. He added that the products are replacing older offerings introduced more than 10 years ago and bring higher prices and higher margins.
According to Kelley, semiconductor design wins are typically multi-year efforts and can become long-term revenue streams. He said once Advanced Energy wins a slot, there is no competition for that position, and customers may continue buying the products for five to 10 years, followed by service revenue.
Data Center Demand Remains Strong Despite Supply Constraints
In data center, Kelley said demand remains strong even though some forecasts have shifted because of downstream supply constraints, including the availability of memory modules and logic silicon. He described the company’s second-quarter forecast moderation as a short-term issue rather than an indication of weakening demand.
“The gating factor is definitely supply,” Kelley said. “If our customers are successful in addressing those constraints, the demand is quite impressive.”
Kelley said Advanced Energy’s data center revenue grew 107% in 2025 compared with 2024, and the company is forecasting at least 35% growth this year. He said the company is gaining share with customers, improving margins and filling its factories with data center products. The Thailand factory is also expected to support data center production, which Kelley described as high volume and low mix.
The company is also working on 800-volt power solutions for data centers. Kelley said Advanced Energy has been sampling modular 800-volt products with customers for several months and is receiving positive feedback. He said the products offer best-in-class power density and efficiency, and that the modular approach allows customers to customize systems for their needs.
Kelley said Advanced Energy is focused on rack-level power conversion, taking 800 volts in and down converting it to the voltage customers require. He said meaningful revenue from 800-volt products is not expected until the second half of next year, with more opportunity in 2028.
He added that the 800-volt transition should increase Advanced Energy’s content and improve margins because the products are modules and boards rather than boxes, making them easier to manufacture.
Industrial and Medical Markets Normalize
Kelley said the industrial and medical market had been in correction mode for much of the past two years, following a period when customers and distributors carried excess inventory after COVID-era supply chain shortages. He said inventories in the distribution channel have declined for six straight quarters and are now close to equilibrium.
“We’re pretty optimistic about our I&M business moving forward,” Kelley said.
He said the company expects industrial and medical revenue to increase each quarter this year, supported by market recovery and the transition of design wins into production. Kelley said customers are now shifting focus to new products, which should help Advanced Energy outgrow the market and improve margins because newer products carry better margins than older ones.
Margin Expansion and Operating Leverage
Executive Vice President and Chief Financial Officer Paul Oldham said the company is still in the “middle innings” of its gross margin improvement efforts. He said Advanced Energy expects second-quarter gross margin to increase by 20 to 50 basis points and expects to exit the year around 41%.
Oldham said newer products should eventually add 200 to 300 basis points to the company’s margin profile as they become a larger part of revenue. He also cited volume benefits and additional manufacturing improvements as contributors to margin expansion.
On operating expenses, Oldham said Advanced Energy expects OpEx to reach about $460 million for the full year. He said the company’s goal is for operating expenses to grow at roughly half the rate of revenue growth, while continuing to invest in research and development.
Oldham said the company should be able to drop 35% to 45% of each incremental revenue dollar to operating income.
Capacity, Cash and M&A Priorities
Kelley said Advanced Energy’s nameplate capacity is about $3.9 billion but could be stretched to roughly $4.5 billion to $5 billion if needed. He said capacity is not expected to be an issue for the company anytime soon and noted that any future acquisition would likely add factories.
Oldham said the company’s recent convertible note offering was primarily intended to refinance existing convertible notes on better terms, lowering its cost of capital. He said Advanced Energy is investing internally in data center and semiconductor markets through engineering and capital expenditures, while external spending would be directed toward “smart M&A,” largely in the industrial and medical market.
About Advanced Energy Industries (NASDAQ:AEIS)
Advanced Energy Industries, Inc is a global technology company specializing in precision power conversion, measurement, and control solutions. The company designs and manufactures a broad portfolio of products including high-voltage power supplies, RF and microwave generators, digital power controllers, reactive gas control systems, and thin film measurement instruments. These solutions enable advanced processes in semiconductor fabrication, flat panel display manufacturing, industrial coating, data storage, telecommunications and medical device production.
Founded in 1981 and headquartered in Fort Collins, Colorado, Advanced Energy has grown through strategic product development and international expansion.
