Shares in Aehr Test Systems (AEHR 25.67%) were up nearly 25% by midday on Monday. The startling increase comes on the day the company announced a landmark $10 million in initial production orders for semiconductor test and burn-in equipment (whereby semiconductors are tested under electrical stress) for an artificial intelligence (AI) customer.

Why the deal matters

It's important for three reasons. First, the size of the deal is significant, not least for a company estimated by Wall Street analysts to generate just $70.8 million in revenue in 2024.

Second, the deal with an AI customer helps diversify Aehr's end-market revenue. The company is known for its role in the silicon carbide chip market used in electric vehicle (EV) power electronics. 

This latest deal helps diversify Aehr's end-market revenue streams, and it also confirms the optimism expressed on the fiscal 2025 first-quarter earnings call in October when CEO Gayn Erickson discussed potential orders from an "AI accelerator company" and said, "As we've noted before, based on the production forecast, we believe they could potentially be more than a 10% customer for us this fiscal year alone." Management appears to have delivered on that promise.

Third, Aehr is a company that investors believe carries significant risk due to its customer concentration. For example, in its fiscal 2024, ended May 31, two customers were responsible for 67% and 17% of its net revenue, and it was even more concentrated in 2023 with two customers accounting for 79% and 10% of its revenue.

All it takes is one significant customer to scale back expectations for investment, and Aehr's growth expectations will be slashed. That, in fact, has happened in recent years as relatively high interest rates have negatively impacted electric automaker's capital investment plans.

Image source: Getty Images.

Growth is just getting started

The deal opens up new markets, and with the possibility of a low interest rate environment improving, or at least stabilizing EV capital investment, the scene is set for Aehr Test Systems to grow strongly in the coming years, and with more diversified revenue and customer streams.