Lifetime Membership Is it light at end of tunnel for AEM share price? The past two years had been an absolute nightmare for investors as the AEM share price crashed from a high of $5.26 on 31 December 2021 to the current $3.70 level. The correction of AEM share price was largely caused by the slowdown in the semiconductor industry. However, AEM share price appears to have bottomed recently as the counter rose 6.7% year-to-date. What could be the driving factor behind the recent revival of AEM share price?
In my view, the recent spike in AEM share price could be attributed to events unfolding in a small Central American nation – Costa Rica, which is Intel’s only assembly and test operations in the West. On 30 August 2023, Intel announced that it would invest US$1.2 billion in the Costa Rica plant over the next two years. Now, how would this affect AEM if you may ask? Let me provide my insights and the resulting impact for AEM share price.
The Costa Rica facility was closed down in 2014 as Intel shifted its assembly and test operations to Asian countries such as China, Malaysia and Vietnam. However, the US-China chip war has led to Intel restarting the assembly and test operations in Costa Rica since 2020.
It is well-known that AEM is a major supplier of Intel, with the former providing design and manufacture of semiconductor assembly and testing equipment to the latter. In recent years, AEM share price had been hit as Intel ceded significant market share to its rivals. To compound matters, the US-China trade wars has led to the ‘chip war’ between the two big boys, resulting in US government reducing its reliance on Asia for the manufacturing of chips.
The signing of the CHIPS and Science law by US President in August 2022 provided US$280 billion funding to US chip manufacturers. This means that Intel may receive significant funding from Biden administration for its Arizona and Ohio fab projects. Apparently, AEM had placed its chips well (no punt intended) as it has a regional headquarter in Arizona and an engineering services company in Costa Rica. The US$1.2 billion investment by Intel in Costa Rica could be the start of a series of massive investments by Intel in the West as the chipmaker seeks to regain its market position in the industry.
In recent years, Costa Rica has emerged as an important market for AEM. In 2022, AEM derived its second largest revenue from Costa Rica ($215 million). In 2021, the revenue from Costa Rica was also the second largest ($107 million). On the other hand, USA was the third largest revenue contributor for AEM ($120 million in 2022 and $99 million in 2021).
Given that the Intel’s US$1.2 billion investment in its Costa Rica plant was announced after AEM’s 1HFY2023 financial result, I am confident that AEM is likely to revise its revenue guidance for FY2023, possibly back to the $500 million level. In any case, even if there is no revenue guidance revision, most investors had already expected FY2023 to be a forgettable year for AEM share price and is already looking forward to 2024, which should bode well for AEM as the semiconductor industry is expected to bounce back in a big way.What goes down must surely goes up. Furthermore, AEM operates in a highly cyclical industry that is driven by economic sentiments. In this context, I am of the view that the worst should be over for AEM share price. Nonetheless, the upcoming 3rd quarter financial result could test investors’ conviction in this counter as the first payment of US$9 million will be made for the arbitration with Advantest. The concern would be whether the payment could lead to a net loss for AEM, thereby thrashing AEM share price.
Previously, I wrote that I was 200% convinced that AEM share price would rise from the ashes to hit another new high. In this article, I will share my view on the outlook for AEM share price in 2023 and 2024.
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. I am vested in this counter, so my views on AEM share price may be biased.
AEM share prices survived kitchen-sinking
In July and August 2023 period, AEM had shaken investors by [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]Lifetime Membership
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