Aehr Test Systems: Building a Moat in EV Semiconductor Testing with the FOX-XP System

The electric vehicle (EV) revolution has created a seismic shift in the semiconductor industry, with silicon carbide (SiC) emerging as a critical material for high-efficiency power systems. Testing these advanced chips—capable of handling thousands of amps—requires specialized equipment that can balance scalability, cost efficiency, and reliability. Enter Aehr Test Systems (AEHR), a leader in wafer-level burn-in (WLBI) systems, whose FOX-XP platform is carving out a defensible moat in this high-growth market.

The FOX-XP: A Technological Leap for SiC Testing

The FOX-XP system is Aehr's crown jewel, designed to test up to 18 300mm wafers simultaneously at high voltages, a capability unmatched by competitors. This scalability reduces capital expenditure (CapEx) by enabling customers to process more wafers in fewer runs. For example, a manufacturer producing SiC chips for EV inverters can cut testing costs by 50% or more compared to legacy systems that handle fewer wafers or require package-level testing.

The system's proprietary WaferPak contactors and advanced thermal management—protected by a robust IP portfolio—are the linchpin of its defensibility. These technologies ensure uniform power distribution across wafers, a critical factor in testing high-power SiC devices without damaging them.

Cost Leadership and IP-Backed Moats

Aehr's edge isn't just technical—it's economic. The 18-wafer configuration slashes operational costs by reducing energy use and labor while increasing throughput. For instance, a customer upgrading from a 9-wafer to an 18-wafer system can double output without doubling testing infrastructure. This cost per wafer advantage is vital in a sector where SiC chipmakers face razor-thin margins.

The company's IP portfolio, spanning wafer contactor designs, thermal control systems, and automation software, creates barriers to entry. As management noted in recent earnings calls, “There's no direct competitor to the FOX-XP in high-voltage wafer-level testing.” This uniqueness allows Aehr to command premium pricing, with non-GAAP margins expanding to 12.5% in fiscal 2025, up from 8% in 2023.

Diversification Beyond SiC: GaN and AI Chips

While SiC remains a core market, Aehr's recent moves into gallium nitride (GaN) and AI processor testing signal a strategic broadening of its addressable market. For example:
- In Q4 2025, Aehr secured its first production order from a major automotive semiconductor supplier for GaN testing using the FOX-XP's 18-wafer high-voltage configuration. GaN's broader applications in consumer electronics and data centers could rival SiC's growth trajectory.
- The company's partnership with NVIDIA (NVDA) to test AI processors—a market projected to be 3-5x larger than SiC by 2030—leverages the FOX-XP's ability to handle wafer-level burn-in for complex chiplet architectures.

The $21.8 million backlog (as of February 2025) underscores strong demand across these segments, with AI-related revenue now contributing 35% of total sales, down from 90% SiC dependency in 2024.

Risks on the Horizon

• Customer Concentration: While diversification is underway, Aehr's top five customers still account for over 60% of revenue. A slowdown in any key account—such as a delay in Tesla's SiC adoption—could pressure margins.
• Valuation Premium: AEHR trades at a P/S ratio of 12x, significantly higher than peers like KLA (KLAC) (4x) or Teradyne (TER) (6x). This premium assumes flawless execution in scaling production and winning new markets.
• Tariff Risks: Trade tensions, particularly with China, could disrupt supply chains for semiconductor equipment. However, Aehr's $26.5 million cash reserves provide a buffer.

Investment Thesis: A Buy for EV Infrastructure Plays

Aehr's FOX-XP platform is a rare example of technology-driven differentiation in a fragmented testing market. Its scalability, cost advantages, and IP-protected innovations create a moat that will widen as EVs and AI chips proliferate.

Key Catalysts to Watch:
1. Backlog Growth: Monitor if the backlog exceeds $25 million by early 2026, signaling sustained demand.
2. Margin Expansion: Non-GAAP margins exceeding 15% would validate cost efficiencies.
3. New Partnerships: Confirm orders from NVIDIA's AI chip division or TSMC's silicon photonics projects.

Conclusion

Aehr Test Systems is a pure-play bet on EV and AI semiconductor infrastructure, with the FOX-XP system uniquely positioned to dominate high-power testing. While risks like valuation and customer concentration linger, the company's diversification into GaN and AI markets, coupled with its IP-protected moat, justify a “Buy” rating for investors seeking exposure to this transformative sector.

Investors should consider Aehr as a core holding for portfolios focused on EVs and advanced semiconductors, but with a long-term horizon to ride out near-term volatility.