Aehr Test Systems (AEHR -0.56%) is a provider of semiconductor testing equipment and other solutions and has exposure to growth trends, including artificial intelligence (AI) and EVs. Its products are highly regarded, and the company enjoys long-term growth catalysts.

However, the stock is down roughly 77% from the high it reached in August 2023. The share price has been highly volatile over the last year, and saw a big sell-off earlier this month after Aehr's most recent quarterly report arrived with sales, earnings, and forward guidance that disappointed Wall Street.

If you're wondering what comes next for Aehr Test Systems, read on for a look at bull and bear cases presented by two Fool.com contributors.

Bull: Long-term growth trumps near-term issues

Lee Samaha: There's no point tiptoeing around the elephant in the room. Semiconductor test equipment Aehr Test Systems is a high-risk, high-reward stock and faces significant near-term issues.

Management recognizes the risk associated with Chinese bookings (potential trade conflicts and intellectual property risks) and has told investors that "growth in silicon carbide sales outside of China should remain challenging before recovering in calendar 2026."

EVs and EV charging networks dominate the demand for silicon carbide chips, and until EV sales recover, automakers will unlikely invest in significantly ramping production.

There is a near-term risk but also a huge long-term opportunity, and it comes from four factors. First, the EV market will recover in time, and no one disputes that the clean energy revolution will occur. Second, Aehr recently signed its first deal with an AI customer (a data center company), representing an opening up of a new market that will diversify its revenue streams and customer base.

Third, Aehr is also looking to expand in the gallium nitride chip market (an area with exposure to a broad range of industries). That will help diversify its end market revenue. Moreover, management had some good news on a gallium nitride order when disclosing it was "thrilled to have received their initial production purchase order marking their commitment to advancing volume production." Again, Aehr is diversifying its revenue streams.

Fourth, for an indication of the industry's confidence in the future of silicon carbide, consider ON Semiconductor's (an Aehr customer) $2 billion commitment to investing in an expansion of silicon carbide wafer manufacturing in the Czech Republic.

These factors speak to the long-term opportunity at Aehr, and the stock is well-suited for the speculative end of a diversified multi-stock portfolio.

Bear: Cyclical headwinds and China risks

Keith Noonan: With the company's market cap having been pushed down to roughly $370 million as of this writing, I wouldn't be surprised to see Aehr Test Systems' stock climb above current levels. But I think that investors also have to consider the possibility that things will get worse before they get better.

With its last quarterly report, Aehr reported that sales had fallen 37% year over year to $13.45 million. A decline was already forecast by the company and expected by Wall Street, but the performance came in significantly below the roughly $15 million in sales called for by the average analyst estimate.

Adding to the disappointment, the company reported bookings of just $9 million in fiscal Q2, which ended Nov. 29. This came on the heels of $16.8 million in bookings posted in fiscal Q1 and raises concerns about the near-term growth trajectory.

The company reported that its order backlog, including subsequent bookings, was now at $26.6 million, so it's still got some significant projects in the delivery pipeline. However, demand indicators suggest the business could have a ways to go before it emerges from its cyclical slog. Inventory accumulated in the period, and Aehr took a write-down on those products, owing to reduced pricing power.

Aehr's business has tended to see big fluctuations along with cyclical trends in the semiconductor industry, which isn't a bad thing in and of itself. The difficult part is estimating at what point in a cycle the company is in. With little indication that momentum in the EV market will accelerate this year and uncertainty surrounding whether recent sales in the AI category will continue at current levels in the near term, Aehr's cyclical upswing could be further out than investors are hoping.

Adding another potential bearish catalyst, trade issues between the U.S. and China threaten to create significant headwinds for the business. The rise of new China-based competitors and intellectual property concerns are also risk factors. These pressures could cause the company's margins to come in significantly below forecasts or for sales to come in significantly below guidance. If either one of these scenarios winds up playing out, Aehr stock could be pushed below its already beaten-down levels.