Advanced Energy (AEIS)

Manufacturing equipment and systems provider Advanced Energy (NASDAQ:AEIS) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 23.8% year on year to $463.3 million. On top of that, next quarter’s revenue guidance ($470 million at the midpoint) was surprisingly good and 5.5% above what analysts were expecting. Its non-GAAP profit of $1.74 per share was 18.5% above analysts’ consensus estimates.

Correction note: A previous version of this article had the incorrect estimates for Q4 CY2025 EPS guidance and Q3 2025 Free Cash Flow margin. We have updated this article to reflect the accurate figures.

Company Overview

Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQ:AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.

Like many equipment and component manufacturers, electronic components companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include data centers and telecommunications, which can benefit companies whose optical and transceiver offerings fit those markets. But like the broader industrials sector, these companies are also at the whim of economic cycles. Consumer spending, for example, can greatly impact these companies’ volumes.

Competitors offering similar products include MKS Instruments (NASDAQ:MKSI), AMETEK (NYSE:AME), and Veeco Instruments (NASDAQ:VECO).

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Advanced Energy grew its sales at a tepid 4.5% compounded annual growth rate. This was below our standard for the industrials sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Advanced Energy’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its most important segments, Semiconductor Equipment and Industrial and Medical Equipment, which are 42.4% and 15.4% of revenue. Over the last two years, Advanced Energy’s Semiconductor Equipment revenue (i.e., plasma power) averaged 5.4% year-on-year growth. On the other hand, its Industrial and Medical Equipment revenue (i.e., robotics) averaged 23.2% declines.

This quarter, Advanced Energy reported robust year-on-year revenue growth of 23.8%, and its $463.3 million of revenue topped Wall Street estimates by 5%. Company management is currently guiding for a 13.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 12.7% over the next 12 months, an improvement versus the last two years. This projection is commendable and implies its newer products and services will fuel better top-line performance.

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

Advanced Energy’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 36.9% gross margin over the last five years. Said differently, roughly $36.91 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

Advanced Energy’s gross profit margin came in at 38.8% this quarter, marking a 2.8 percentage point increase from 36.1% in the same quarter last year. Advanced Energy’s full-year margin has also been trending up over the past 12 months, increasing by 2.6 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Advanced Energy has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.6%, higher than the broader industrials sector.

Analyzing the trend in its profitability, Advanced Energy’s operating margin decreased by 3.1 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Advanced Energy generated an operating margin profit margin of 10.6%, up 13.6 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Advanced Energy’s unimpressive 4.5% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Although it wasn’t great, Advanced Energy’s two-year annual EPS growth of 4% topped its flat revenue.

Diving into the nuances of Advanced Energy’s earnings can give us a better understanding of its performance. Advanced Energy’s operating margin has expanded over the last two years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Advanced Energy reported adjusted EPS of $1.74, up from $0.98 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Advanced Energy’s full-year EPS of $5.77 to grow 26.8%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Advanced Energy has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 7.3% over the last five years, slightly better than the broader industrials sector.

Advanced Energy’s free cash flow clocked in at $50.8 million in Q3, equivalent to a 11% margin. This result was good as its margin was 5.2 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Advanced Energy hasn’t been the highest-quality company lately because of its poor bottom-line (EPS) performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 12.7%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Advanced Energy’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Companies with more cash than debt have lower bankruptcy risk.

Advanced Energy is a profitable, well-capitalized company with $758.6 million of cash and $584.7 million of debt on its balance sheet. This $173.9 million net cash position is 2.3% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by Advanced Energy’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its Semiconductor Equipment revenue missed. Zooming out, we think this was a good print with some key areas of upside. Investors were likely hoping for more, and shares traded down 6.2% to $190 immediately after reporting.

Updated: December 4, 2025 at 10:27 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Advanced Energy, you should also grasp the company’s longer-term business quality and valuation.

Advanced Energy falls short of our quality standards. First off, its revenue growth was uninspiring over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its declining operating margin shows the business has become less efficient.

Advanced Energy’s P/E ratio based on the next 12 months is 29.2x. This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $225 on the company (compared to the current share price of $215.35).