Advanced Energy's Q3 2025: Contradictions Emerge on Data Center Capacity, Semiconductor Forecasts, and Thailand Facility Plans

Date of Call: November 4, 2025

Financials Results

• Revenue: $463M, up 5% sequentially and 24% year-over-year
• EPS: $1.74 per share, up 78% year-over-year (vs $1.50 last quarter)
• Gross Margin: 39.1%, up 280 basis points year-over-year and up 100 basis points sequentially
• Operating Margin: 16.8%, improved 220 basis points sequentially

Guidance:

• Q4 revenue roughly $470M +/- $20M.
• Q4 gross margin expected 39%–40% (would be >=40% excluding tariffs).
• Q4 non-GAAP EPS ~$1.75 +/- $0.25; tax rate ~17%.
• Q4 operating expenses ~ $107M; other income $1.5M–$2M.
• Raised 2025 revenue growth outlook to ~20%; data center revenue expected to more than double 2024.
• Data center growth targeted 25%–30% in 2026; semiconductor acceleration expected in H2 2026.
• Thailand factory is facilitzed and can start production within months of a go signal.

Business Commentary:

* Revenue and Earnings Growth: - Advanced Energy's total revenue increased by 24% year-over-year in Q3 2025. - The increase was driven by record data center revenue, which more than doubled year-on-year, and cost savings from a factory closure.

• Data Center Expansion:
• Data center computing revenue reached a record $172 million, up 113% year-over-year and 21% sequentially in Q3 2025.

• Growth was driven by successful execution, capital investment, and strong demand for AI-driven applications.

• Semiconductor Market Dynamics:

• Semiconductor revenue was $197 million in Q3 2025, about flat year-over-year but down 6% sequentially.

• The company is optimistic about semiconductor growth in 2026 due to new product design wins and increased demand for leading-edge logic and memory processes.

• Operational Efficiency and Margin Improvement:

• Gross margin improved to 39.1% in Q3 2025, up 280 basis points year-over-year and 100 basis points sequentially.
• This was largely due to benefits from the China factory closure and lower tariff costs, despite higher data center revenue.

Sentiment Analysis:

Overall Tone: Positive

• Management: "Third quarter revenue and earnings exceeded the high end of guidance." Total company revenue "increased 24% from last year." CFO: "EPS of $1.74, up 78% from last year." Company "now expect overall 2025 revenue to grow approximately 20%" and raised data center outlook to more than double 2024 levels.

Q&A:

• Question from Brian Chin (Stifel, Nicolaus & Company, Incorporated, Research Division): Sorry, this first one might be multipart. So I'm curious, what constraints were you able to alleviate allowing you to more than double data center revenue growth this year? When do you plan to begin shipping product from your new Thailand facility? And do you anticipate any efficiencies in the earlier stages of that ramp? And last part of that question, will you have the bandwidth to bring up new customers alongside your four existing cloud customers?
  Response: Core takeaway: Capacity constraints were relieved via increased CapEx allowing them to capture upside and more than double data center revenue; the Thailand factory is fully facilitized and can start production within months of a go signal (possible prequalification in H2 2026, larger ramps later), and they believe they have engineering and factory bandwidth to add second-wave customers using existing technology blocks while prioritizing hyperscalers.

• Question from Brian Chin (Stifel, Nicolaus & Company, Incorporated, Research Division): ...when you think about the tailwinds to AI server power content and just aggregate demand that are likely to persist next year, can you -- I know it's early, but can you put any parameters around the magnitude of growth you might anticipate in your data center business in 2026?
  Response: Core takeaway: CFO guidance: management expects data center growth of roughly 25%–30% in 2026 and views Q3/Q4 as a higher baseline with capacity prepared to capture upside.

• Question from Joseph Quatrochi (Wells Fargo Securities, LLC, Research Division): I was curious on the data center side. I seem like the upside this quarter was a lot driven by just kind of catching up to some of the backlog you were unable to fulfill. I guess how do we think about that contribution in 3Q and 4Q as we look into '26? And then on the semiconductor side, I think 3Q came in maybe a little bit lower than we were anticipating. But are you still kind of guiding for maybe on the lower end of the mid-single-digit growth for '25... Is that kind of what we should be thinking about for your business as well?
  Response: Core takeaway: Management says Q3 included backlog catch-up enabled by factory flexibility but represents a new, higher baseline they can grow from; semiconductor is choppy short-term (Q1 ~ Q4) with potential meaningful upside from Q2 2026 driven by new products.

• Question from Steve Barger (KeyBanc Capital Markets Inc., Research Division): Steve, I think you said customers that validated yield and throughput on eVoS and eVerest are leading edge. First, just as that evolved, did you have an early adopter customer and then follow-ons? And then longer term, can you talk about what this means for both leading edge and then for memory in terms of your ability to drive revenue and take share? And from a TAM standpoint for the new products, is it bigger on leading edge? Or is it bigger on memory potentially?
  Response: Core takeaway: Multiple early adopters ran parallel design efforts; conductor etch and deposition wins should ramp to volume in 2026 with dielectric etch ramps in 2027, and management expects substantial upside and market-share gains (especially in dielectric etch) though the split between logic and memory is unclear.

• Question from Steve Barger (KeyBanc Capital Markets Inc., Research Division): And then for my follow-up, Paul, it seems like '26 is shaping up to be a solid growth year. Mix is probably going to be pretty positive. Is it reasonable to think about incremental margin for the year in line or better with what we're going to see in 2025 as you think about flow-through and how you manage the business?
  Response: Core takeaway: CFO: they expect continued flow-through but diminishing incremental margin per $50M as scale rises (e.g., ~50–70 bps per $50M at current scale); they aim to get >40% gross margin in near term and 43% long-term, while offsetting tariff and mix headwinds.

• Question from Sreekrishnan Sankarnarayanan (TD Cowen, Research Division): Paul, when you look at data center growing to approach semiconductor revenues, how would that impact your gross margins in 2026? And then on high-voltage DC (800V/400V), how should we think about the opportunity and timing?
  Response: Core takeaway: On mix, CFO expects potential margin impact on the order of ~50 bps but believes they can mitigate it and still exceed 40%; CEO: they are actively developing high-voltage DC (including 800V) with volumes expected in 2027–2028 and are well engaged with customers.

• Question from James Ricchiuti (Needham & Company, LLC, Research Division): Can you give us a sense as to whether you've gained share among your leading customers in the data center demand you're seeing? And with the strength in data center, have your M&A priorities changed at all?
  Response: Core takeaway: CEO: they don't report data-center share metrics publicly, focus on profitable, selective program share (doubled revenue while maintaining healthy margins); M&A priorities unchanged—still targeting Industrial & Medical consolidation despite data-center strength.

• Question from Scott Graham (Seaport Research Partners): If demand accelerates again, are you prepared to bring the Thailand facility fully online in the second half of next year to meet demand, and if so, is there a cost or margin impact? Also, are you comfortable with wins and product refreshes outside eVoS/eVerest so you're ready when WFE turns up?
  Response: Core takeaway: CEO: they are prepared to bring Thailand online and prefer to ramp it with high-volume data-center products; CFO: Thailand was contemplated in margin goals though some ramp costs exist and will be managed; CEO also said mainstream semiconductor products and Malaysia capacity are ready for WFE recovery.

• Question from David Duley (Steelhead Securities LLC): If WFE grows 5%–7% in 2026, what can your semi business grow, and how many major wins are ramping in 2026? How many 10% customers did you have in Q3 and might a hyperscaler become a 10% customer? Also, does Thailand capacity imply further factory closures or consolidation?
  Response: Core takeaway: CEO: they have broad engagement and many potential wins but did not quantify ramping wins; CFO: 10% customer disclosures are annual and a data-center customer could become a top-10 by year-end; CEO: consolidation largely complete (China factory closed) and Thailand adds growth capacity rather than prompting more closures.

• Question from Robert Mason (Robert W. Baird & Co. Incorporated, Research Division): How do you see the mix in data center in 2026 between existing hyperscaler customers and emerging enterprise customers, and would their margin profile be similar? Also, with OpEx stepping up in Q4, how should we think about the run rate entering 2026?
  Response: Core takeaway: CEO: 2026 will be weighted toward existing customers with some new-customer contributions mainly in H2; margins for those programs are expected to be similar; CFO: OpEx should run near the ~$107M Q4 level and generally increase about $2M–$2.5M per quarter with discipline (OpEx growth targeted to be <=50% of revenue growth).

Contradiction Point 1

Data Center Revenue Growth and Capacity Constraints

It involves differing explanations for the capacity constraints that were alleviated and the timeline for addressing those constraints, which could impact revenue projections and investor expectations.

What constraints did you remove to nearly double data center revenue growth this year? When do you plan to start shipping products from your new Thailand facility? Do you expect efficiencies during the initial production ramp-up in Thailand? Will you have the capacity to onboard new customers while maintaining existing cloud customers? - Brian Chin (Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q3: Constraints that we removed in 2025 were largely capacity-oriented, allowing us to meet upside forecast from our key customers. The new Thailand factory is fully facilitized and ready to go within months of a go signal. We plan to put new customers in that factory, likely in the latter part of the year. We will begin to bring that factory up in the second half of 2026. - Stephen Kelley(CEO)

How sustainable is data center demand given its historically lumpy nature? What are the market share gains? - Krish Sankar (TD Cowen)

2025Q2: The demand is expected to remain sustainable into 2026 due to continuing high investments by hyperscalers. The high frequency of change in the market is driven by new GPU releases, which require more power. AE has a high win rate, and there are ancillary opportunities beyond hyperscale customers. Capacity expansion is also supporting the growth. - Stephen D. Kelley(CEO)

Contradiction Point 2

Semiconductor Revenue Outlook

It involves changes in the outlook for semiconductor revenue growth, which is crucial for financial forecasting and investor expectations.

Are you still guiding for mid-single-digit semiconductor growth in 2025, and what's your outlook for 2026? - Joseph Quatrochi (Wells Fargo Securities, LLC, Research Division)

2025Q3: We're more optimistic about '26 than we were during the last earnings call. We expect demand for leading-edge logic and memory to accelerate in 2H '26 into 2027, driven by new product design wins and leading-edge market strength. - Stephen Kelley(CEO)

Why was the semiconductor growth outlook cut to mid-single digits from 10%? - Joseph Michael Quatrochi (Wells Fargo Securities)

2025Q2: The outlook was reduced due to tariffs affecting customer ordering and China's slowdown. However, revenue levels are the highest ever, excluding the 2022 COVID recovery year. - Stephen D. Kelley(CEO)

Contradiction Point 3

Thailand Facility Timeline and Product Focus

It revolves around the timeline and product focus of the Thailand facility, which is essential for understanding the company's production and strategic planning.

What constraints did you overcome to enable the near doubling of data center revenue growth this year? When will production begin at your new Thailand facility? - Brian Chin (Stifel)

2025Q3: The new Thailand factory is fully facilitized and ready to go within months of a go signal. We plan to put new customers in that factory, likely in the latter part of the year. We will begin to bring that factory up in the second half of 2026. - Stephen Kelley(CEO)

Have tariffs impacted plans for the Thailand facility? - Chris Grenga (Needham & Company)

2025Q1: Thailand plans are on track. The facility will start with plasma power products, which are less sensitive to tariffs. We expect to open in 2026 when demand justifies it. - Stephen Kelley(CEO)

Contradiction Point 4

Semiconductor Market Outlook and Demand

It involves differing expectations for semiconductor demand in 2025, which impacts revenue forecasts and strategic planning.

How should we assess the data center upside this quarter and into 2026? - Joseph Quatrochi (Wells Fargo Securities, LLC, Research Division)

2025Q3: We are more optimistic about '26 than we were during the last earnings call. We expect demand for leading-edge logic and memory to accelerate in 2H '26 into 2027, driven by new product design wins and leading-edge market strength. - Stephen Kelley(CEO)

Is the 10% year-over-year growth for semi equipment, factoring in the acceleration in the back half of last year and the potential to outgrow WFE mentioned earlier, the correct reference point for outperformance? - Brian Chin (Stifel, Nicolaus & Company, Incorporated, Research Division)

2024Q4: What we said basically is we were able to take advantage of opportunities in Q4 to maximize revenue in semiconductor. As we move into Q1, we're seeing the semiconductor demand moderate a bit. - Stephen Kelley(CEO)

Contradiction Point 5

Data Center Revenue Growth

It involves the explanation of data center revenue growth, which is a crucial aspect for understanding the company's financial performance and strategic focus.

What constraints did you alleviate that enabled your data center revenue to nearly double this year? When do you plan to start shipping products from your Thailand facility? - Brian Chin (Stifel)

2025Q3: Constraints that we removed in 2025 were largely capacity-oriented, allowing us to meet upside forecast from our key customers. - Stephen Kelley(CEO)

Can you discuss the initial production ramp-up of new plasma power products and potential tariff impacts? - Brian Chin (Stifel)

2025Q1: Our data center business grew 18% year-over-year, three points above our expectations. So we're happy with that. - Stephen Kelley(CEO)