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The electric vehicle (EV) industry has lost some steam in 2024, especially in the U.S. High sticker prices and high interest rates have throttled growth to just 10% so far this year, especially as Tesla has had some missteps. Europe and China (the latter being far and away the largest market for EVs), however, have continued to chug higher by 21% and 32%, respectively, through the first few months of 2024.
Taking a bigger-picture view, EVs are but one part of an important movement toward greater efficiency in power management. Semiconductors are key to that movement. And one key enabler, Axcelis Technologies (NASDAQ: ACLS), could be a very reasonably priced stock right now.
Power chips are next-gen infrastructure
A new secular growth market has emerged: Next-gen semiconductors with low energy loss (via heat) that can handle high voltages and help power wind and solar systems, electric motors in manufacturing equipment, EVs, and artificial intelligence (AI) servers in data centers.
Of course, in recent years, the EV movement was the face of this energy-efficiency trend. But under the surface, it's been the chips themselves that act as the driving force for efficiency gains. Power chips have thus become a type of building block for today's economic infrastructure.
A slew of new technologies have emerged to manufacture more energy-efficient chips. Axcelis Technologies is one of those tech providers. It makes ion implantation machines, which enables chip manufacturers to precisely embed layers of elements other than silicon into a silicon wafer. These embedded layers can alter the conductivity of the chips cut from the wafers and, ultimately, the power devices themselves that the chips go into. Besides power chips, including a high-growth part of this market driven by silicon carbide (SiC) chips found in increasing numbers in EVs, ion implant is also used a bit in memory and logic chips.
Axcelis' chief competitor is the semiconductor equipment giant Applied Materials (NASDAQ: AMAT), which acquired a smaller ion implant specialist called Varian Semiconductor Equipment Associates in 2011. Applied sells many other manufacturing equipment besides ion implant machines.
Both Applied and Axcelis had a stellar run through 2023 as chip fabs purchased lots of equipment for EVs and other advanced power applications. But that growth cycle has come to an end in 2024, and a downturn is expected to last through at least this summer before equipment purchases from chip fabricators pick up pace once more.
A cheap stock gearing up for a run higher?
Applied Materials stock has kept rising due to the fact it has a highly diversified mix of equipment, and sales have thus held steady. As an ion implant specialist, Axcelis' revenue is more volatile, which is reflected in that falling stock price in the recent year or so.