Here's Why Shares in Aehr Test Systems Declined in December, But Looks a Great Buy Now

Shares in Aehr Test Systems (NASDAQ: AEHR) fell by 12.1% in December, according to data provided by S&P Global Market Intelligence. The move comes as many investors have walked away from stocks perceived as riskier plays in the artificial intelligence (AI) investing theme.

Aehr Test Systems and artificial intelligence

The company's traditional market is in wafer-level burn-in (WLBI) test solutions for the silicon carbide (SiC) market. It's a market dominated by electric vehicles (EVs). Consequently, the company's revenue boomed when automakers invested heavily in developing EV models to gain relevance in the growing automotive sector; however, it started declining when they pulled back after experiencing disappointing sales.

In response, Aehr is opening up new markets for WLBI test systems to customers developing AI processors, including a lead customer described as a "world-leading hyperscaler" that has already placed multiple orders.

What went wrong in December

However, the reality is Aehr's AI-related revenue hasn't offset the declines in EV-related revenue, and the company's revenue continues to decline while Aehr is loss-making. For reference, it recently released its second-quarter earnings, and revenue is down to $20.9 million in the first six months, compared to $26.6 million in the same period. Aehr reported a non-GAAP loss of $0.4 million in the first six months.

Such facts concern a market that's becoming increasingly discerning between cash-burning companies, such as Oracle, which are signing deals to provide services to loss-making companies like OpenAI, and highly profitable, cash-rich companies like Alphabet, which are operating in their core competencies.

Unfortunately, the market appears to be lumping Aehr in with the former group, at least for now.

Image source: Getty Images.

Is Aehr Test Systems a stock a buy?

That approach, if taken, would be unfortunate, because there's a strong case for buying the stock. It's based on the fact that Aehr's AI-related orders are growing fast, and the EV-related revenue is likely to at least stabilize. For example, management recently disclosed that its backlog was $11.8 million as of Novrember 28, but since then it's grown to $18.3 million, and CEO Gayn Erickson expects second half bookings "will be between $60 million and $80 million, which would set the stage for a very strong fiscal 2027 that begins on May 30, 2026."

These bookings will eventually translate into revenue, and EV capital spending is likely to resume as long as EV sales growth outpaces internal combustion engine (ICE) sales growth and the regulatory environment remains in place.

It adds up to make Aehr Test Systems an attractive stock for growth investors looking to buy a beaten-down AI-themed stock for 2026.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Oracle. The Motley Fool has a disclosure policy.