AEIS Q2 Deep Dive: Data Center Demand and Margin Expansion Drive Results

Manufacturing equipment and systems provider Advanced Energy (NASDAQ:AEIS) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 21% year on year to $441.5 million. On top of that, next quarter’s revenue guidance ($440 million at the midpoint) was surprisingly good and 4.7% above what analysts were expecting. Its non-GAAP profit of $1.50 per share was 14.7% above analysts’ consensus estimates.

Is now the time to buy AEIS? Find out in our full research report (it’s free).

StockStory’s Take

Advanced Energy delivered a quarter marked by strong demand in its data center power solutions and a notable recovery in industrial and medical segments. CEO Stephen Kelley attributed the company’s performance to its business diversification strategy, which helped offset softness in some sectors. Kelley highlighted that “our high-efficiency, high-power density products have proven ideal for AI applications,” supporting robust growth in the data center segment. Management also credited increased design wins and product innovation for driving sequential revenue growth in industrial and medical markets.

Looking ahead, Advanced Energy’s forward guidance is shaped by sustained demand in data center computing, continued investment in new product development, and expectations of further gross margin improvement. Kelley stated the company is “well positioned to gain share” given strong customer pull for new products and ongoing investments in manufacturing capacity. Management remains focused on mitigating tariff costs and leveraging design wins in semiconductor and industrial markets to support overall revenue growth through 2026.

Key Insights from Management’s Remarks

Management pointed to data center demand, product wins in semiconductor, and progress in industrial and medical as key contributors to both the quarter’s outperformance and the company’s improved margin profile.

• Data center surge: The company’s data center computing segment saw revenue nearly double year-over-year, supported by heightened demand from hyperscale customers and the increasing power requirements of AI-driven applications.
• Semiconductor platform traction: Advanced Energy’s eVoS, eVerest, and NavX platforms experienced strong customer interest, with management expecting these new products to more than double their revenue contribution in 2025 as they move from initial wins to early production.
• Industrial and medical recovery: While still below prior-year levels, the industrial and medical segment posted its first sequential growth since 2023. Management cited a record number of design wins and a growing backlog, particularly through expanded distributor relationships and digital marketing efforts.
• Gross margin improvement: The closure of the company’s last factory in China and ongoing production efficiency initiatives contributed to operating margin gains. Management expects gross margin to approach 40% by year-end despite ongoing tariff pressures.
• Tariff impact and mitigation: Tariffs remain a significant cost headwind, but management is shifting production to Mexico and optimizing supply chains to offset some of the impact, aiming to maintain margin targets while adapting to a dynamic regulatory environment.

Drivers of Future Performance

Advanced Energy’s outlook is driven by sustained data center demand, semiconductor technology investments, and gradual recovery in industrial and medical markets.

• Data center momentum: Management expects data center revenue growth to remain elevated into 2026, citing ongoing hyperscaler investment cycles and a high win rate for next-generation power solutions tailored for artificial intelligence workloads. The company is also expanding capacity in the Philippines and Mexico to meet this demand.
• Semiconductor and new product scaling: The company anticipates that revenue from its new semiconductor platforms will accelerate as leading-edge manufacturing processes move to volume production. Management cautioned, however, that tariff-related customer order shifts and slowing demand in certain markets, such as trailing edge logic and DRAM, may temper growth.
• Industrial and medical market recovery: After an extended downturn, Advanced Energy sees signs of sustained improvement in industrial and medical, supported by reduced channel inventories and new design wins. Management expects gradual sequential growth, but highlighted that small and mid-sized customers remain sensitive to tariff impacts and broader economic uncertainty.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the pace and sustainability of data center revenue growth as hyperscaler investments evolve, (2) progress toward margin expansion, particularly as benefits from the China factory closure and supply chain optimization are realized, and (3) the impact of tariff mitigation strategies on cost structure and competitive positioning. Execution on new product ramps and ongoing recovery in industrial and medical markets will also be important indicators of momentum.

Advanced Energy currently trades at $159, up from $140 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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