What Management Said
Read the full Q2 2026 transcript ↗You can find today's earnings press release and presentation on our website at ir.advancedenergy.com. Any targets beyond current year presented today should not be interpreted as guidance. In the second quarter, we delivered record results with revenue and earnings above the high end of our guidance. Demand strengthened in all of our target markets, and solid factory execution allowed us to capture upside within the quarter.
Our investments in capacity and piece part inventory are allowing us to keep pace with increasing customer demand. We are working closely with some of our largest data center and semiconductor customers to qualify our new Thailand factory, where we now expect first production revenue in the fourth quarter. When Thailand is fully built out, we expect to have roughly $5 billion of revenue-generating capacity across our factory network. On the new product front, we continue to increase our investment in R&D, which is critical to maintaining our technology leadership and competitive edge.
The semiconductor equipment market is growing to record levels, driven by strong demand for leading-edge memory and logic, as well as increasing etch and dep intensity. We are executing well to meet this increased demand, delivering sequential revenue growth of over 27% in the second quarter. With additional design wins in the pipeline, we expect new product revenue to accelerate our revenue growth in 2027 and beyond. In data center computing, we see robust demand in the second half and now expect full-year revenue growth of at least 50%.
What went well
- Advanced Energy delivered record Q2 results, with revenue of $574 million up 30% year-over-year (12% sequentially) and non-GAAP EPS of $2.74 up 83%, both above the high end of guidance.
- Semiconductor revenue hit a record $278 million, up 27% sequentially and 33% year-over-year, on strong leading-edge memory and logic demand and rising etch/deposition intensity.
- Data Center Computing revenue grew 35% year-over-year to $192 million, and management raised the full-year data-center growth outlook to at least 50% (after more than doubling in 2025) on accelerated hyperscaler investment.
- Gross margin improved 380 basis points year-over-year to 41.9% (40.7% excluding tariff refunds, still above guidance), on higher volume and a favorable new-product mix, with line of sight to over 43%.
- Record operating income of $125 million lifted operating margin 730 basis points year-over-year to 21.9%, a level not achieved in many years, while operating cash flow was a record $86 million.
- The company strengthened its balance sheet with a $1.15 billion 0%-coupon convertible offering (redeeming higher-cost 2028 notes), ending with $1.4 billion of cash, and is qualifying premier data-center and semiconductor customers at its new Thailand factory (first revenue in Q4).
What went wrong
- The implied Q3-to-Q4 semiconductor trajectory suggests some sequential moderation; management deflected by saying it is simply 'shipping in line to demand,' declining to comment on customer inventory building.
- AE's ~30%-plus semiconductor growth trails some customers guiding to ~40%, reflecting that roughly 25% of the semi business (service and slower-growing areas) does not track wafer-fab equipment one-for-one.
- Operating expenses of $115 million were slightly above guidance on timing of program spending and variable costs, and are guided higher ($120-$124 million in Q3) on new-product investment.
- 800-V data-center products are not expected to reach meaningful/high-volume production until 2028 (initial revenue late 2027), later than some competitors shipping earlier.
- Working capital rose as inventory increased 10 days to 145 days (turns down to ~2.5x) from a deliberate strategic piece-part build, and the GAAP tax rate was elevated (18.2%) by non-deductible costs tied to retiring the 2028 convertible note.
- Second-wave data-center customers are engaged but take nine months to a year to reach production, so their meaningful contribution is a 2027-and-beyond story rather than immediate.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Revenue | Q3 2026 | ~$640M +/- $20M |
| Gross margin | Q3 2026 | 41%-41.5% (up from Q2 ex-tariff-refund) |
| Non-GAAP EPS | Q3 2026 | $3.00 +/- $0.25 on 41M shares |
| Operating expenses | Q3 2026 | $120M-$124M |
| Revenue growth | FY2026 | Low-to-mid 30% range |
| Data Center growth | FY2026 | At least 50% |
| Semiconductor growth | H2 2026 | Up almost 50% year-over-year |
| Gross margin | Q4 2026 | ~42% range |
| Full-year OpEx | FY2026 | ~$470M |
| Capital expenditures | FY2026 | $180M-$195M |
| Revenue growth | FY2027 | Over 20% (third consecutive year), aided by Thailand |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Total revenue | +30% to $574M (record) | Up 12% sequentially on strengthening demand across all markets and solid factory execution capturing upside. |
| Semiconductor revenue | +33% to $278M (record) | Record wafer-fab-equipment market driven by leading-edge memory/logic and higher etch/dep intensity; up 27% sequentially, shipping in line with demand. |
| Data Center Computing revenue | +35% to $192M | Down 1% sequentially as expected, then progressively improved as customers resolved downstream constraints, setting up a stronger second half. |
| Industrial & Medical revenue | +17% to $80M | Up 11% sequentially as market conditions improved and new-product wins ramped; distributor resales, orders, and inventory all improved. |
| Telecom & Networking revenue | +12% to $24M | Down 4% sequentially; several customers evaluating rack power solutions for AI-related (second-wave) applications. |
| Gross margin | +380 bps to 41.9% | Higher volume and favorable new-product mix; 40.7% excluding tariff refunds, still above guidance. |
| Operating margin | +730 bps to 21.9% | Record operating income of $125M on strong volume leverage, with OpEx up only 11% versus 30% revenue growth. |
| Non-GAAP EPS | +83% to $2.74 | Up from $2.09 in Q1 and $1.50 a year ago; included $0.04 tariff-refund benefit and a favorable 14% non-GAAP tax rate. |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Capacity expansion and Thailand | Malaysia/Philippines/Mexico network | AE is increasing Malaysia output and qualifying its new Thailand factory (first revenue Q4) with premier data-center and semiconductor customers; fully built out, the network will have roughly $5 billion of revenue-generating capacity (already over $2.6 billion implied by Q3 guidance). | — |
| Semiconductor share gains | 2024 Analyst Day share-gain targets | Management says it is better positioned to gain share than ever, ahead of plan, via new eVerest/eVoS plasma-power platforms (yield/throughput advantages at leading-edge conductor/dielectric etch and deposition) and system-power wins in process and test tools, powering multi-year share gains. | — |
| Data center three growth vectors | Concentrated hyperscaler business | Growth comes from (1) expanding wins at four engineering-intensive hyperscalers, (2) 'second-wave' customers (outside the top hyperscalers, less engineering-intensive, using existing technology blocks) ramping in 2027 toward the size of AE's largest hyperscaler, and (3) 800-V products (initial revenue late 2027, high volume 2028). | — |
| 800-V data-center transition | 12V/48V architectures | AE developed multiple modular DC-DC and AC-DC 800-V solutions (98%-range efficiency, high density, low profile) receiving positive early-unit feedback; seen as a share-gain and content-per-rack opportunity, expected to coexist with 12V and 48V architectures. | — |
| Strategic inventory and supply chain | COVID-era component shortages | AE is deliberately building healthy, low-obsolescence piece-part inventory (turns down to ~2.5x) and maintaining high factory staffing to flex to upside and avoid constraining customers, funded by a strong balance sheet, with AP/AR improvements mitigating the working-capital impact. | — |
| Gross-margin drivers | Factory consolidations and volume | With factory-consolidation and much of the volume benefit realized, future margin gains (toward and beyond 43%) come primarily from a richer new-product mix (already contributing), continued manufacturing-efficiency improvement, and price actions kept broadly price-cost neutral. | — |
| Industrial & Medical recovery | Post-COVID destock 'hangover' | Bookings nearly doubled versus the prior two years across the last three quarters (distributor bookings +80%, resales +40%, channel sales +45%), on market recovery plus new-product wins ramping (electrosurgery, test & measurement, aerospace/defense, automation, robotics), with strength expected through 2027. | — |
Q&A Summary
Matthew Prisco (Cantor Fitzgerald) asked what drove the increased data-center positivity versus three months ago and what accelerating 2027 growth means, plus AE's ability to outgrow WFE in semiconductors.
CEO Steve Kelley said customers resolved earlier supply-chain constraints, making AE more bullish on H2 and 2027; three data-center vectors (more hyperscaler wins ramping, second-wave customers, and 800-V late next year into 2028) drive acceleration. In semis, AE is better positioned to gain share than ever via new plasma-power and system-power platforms offering yield/throughput advantages at the leading edge.
Joe Quatrochi (Wells Fargo) asked about the strategic inventory build versus forward demand and gross-margin puts/takes from price actions.
Kelley said AE is leaning into low-obsolescence strategic inventory and high factory staffing to avoid constraining customers as lead times extend, drawing on COVID-era lessons (second sourcing, dropping underperforming suppliers). Oldham said the build lowered turns to ~2.5x as signaled, mitigated by AP/AR improvements, and that margin drivers ahead are new-product mix, volume, and manufacturing efficiency, with pricing kept broadly price-cost neutral.
Krish Sankar (TD Cowen) asked why semi growth (~30%+) trails customers at ~40% and about hyperscaler count and 800-V timing versus competitors.
Kelley said AE has outgrown competitors and WFE over three-to-five years despite year-to-year product-mix variation, with H2 semi up almost 50%; AE has four hyperscale customers (some larger than others) and second-wave customers taking nine-to-twelve months to production, and its differentiated modular 800-V products are targeted for initial revenue late 2027 and meaningful ramp in 2028.
Shane Brett (Morgan Stanley) asked about the timeframe for second-wave customers reaching the size of AE's largest hyperscaler and content step-up from 400-V to 800-V.
Kelley said second-wave aggregate revenue could reach the largest hyperscaler's level by roughly 2028-2029, though timing is hard to pin down, supported by Philippines and Thailand capacity; on content, AE focuses on sole/dual-source high-end opportunities requiring engineering input rather than a simple per-rack multiple.
Steve Barger (KeyBanc) asked how data-center engagements have evolved and whether leading-edge semiconductor power requirements are rising faster than unit volumes.
Kelley said products sit mostly at the rack level with fast AI development cycles and ~9-12 month lags to full ramp, and the number of projects per customer keeps rising with confidence in AE's development and volume capability; leading-edge semiconductor power density is a harder problem (higher voltages, constrained fab space), but common technologies transfer between data center and semiconductor development.
Mehdi Hosseini (SIG) and others probed the data-center product mix, growth acceleration, and the implied semi Q3-to-Q4 shape; Duksan Jang (BofA) pressed on WFE outgrowth confidence and the gross-margin path.
Kelley said all data-center solutions are currently rack-level with more dollars per rack as power density rises, and cited three growth vectors supporting further acceleration; Oldham said AE ships in line to demand (declining to characterize customer inventory), remains confident in outgrowing WFE via its systems business and tracked share gains, and sees margin upside beyond 43% led primarily by new-product mix plus manufacturing efficiency, with each $50M of quarterly revenue now worth ~40 basis points.
More on Advanced Energy Industries Inc
Reported 2026-08-03 · figures from the Advanced Energy Industries Inc Q2 2026 earnings call.
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