Summary
ACM Research ($ACMR) is a key player in the global semiconductor industry, providing advanced capital equipment such as wet-cleaning and front-end processing tools used in the production of semiconductor chips. The industry has been experiencing significant growth, with total revenues projected to increase from $503 billion in 2023 to $980 billion by 2029. Despite recent market challenges, $ACMR has successfully grown revenues by at least 40% annually in the last five years and has also improved gross profit margins. Most of ACM’s operations and customers are domiciled in Mainland China, where ACM aims to achieve majority market share long term. At its current share price, consensus analyst price targets show significant potential upside.
First Solar Inc. ($FSLR) is a leading global provider of solar panels and a developer of large-scale solar power plants. It specializes in the production of thin-film solar modules using unique technology, which makes their panels more cost-effective compared to traditional silicon-based panels. First Solar operates globally, with a strong presence in the US and expanding operations in India and Europe, benefiting from government incentives like the Inflation Reduction Act of 2022. First Solar has significant growth potential, with total booking opportunities of 80.6 GW. As of Q2 2024, the company had net bookings of 3.6 GW, with current production capacity at 7.1 GW, set to expand to 14.1 GW by next year. Financially, First Solar has shown strong performance in recent years, with a robust balance sheet and positive free cash flows, positioning it for continued growth in the rapidly expanding solar energy industry.
ACM Research ($ACMR)
$19.49 – Share price at time of writing
Source: tradingview.com
Summary:
- Share price at the time of writing: $19.49
- ACM Research ($ACMR) provides advanced capital equipment and tools used in the production of semiconductor chips.
- The company has a significant customer base in Mainland China, where ACM owns a 1,000,000 square foot production facility, and has established sales and service teams globally to support growth beyond China.
- The semiconductor industry has been experiencing significant growth, with total revenues projected to increase from $503 billion in 2023 to $980 billion by 2029. ACM aims to achieve majority market share in China.
- ACM Research has seen impressive annual revenue growth ranging from 40-65% in the last five years. Its net income has also grown considerably over time.
- $ACMR has seen substantial price volatility this year, however is now trading flat year-to-date. Consensus analyst price targets signal a potential upside of over 70%.
What they do:
ACM Research ($ACMR) provides advanced and innovative capital equipment for the global semiconductor industry. Their wet-cleaning and front-end processing tools are used in producing advanced integrated circuits, including dynamic random-access memory (DRAM) and 3D NAND-flash memory chips. ACM also develops and sells a range of advanced packaging tools for wafer assembly and packaging customers.
ACM records revenues in three segments:
- Single wafer cleaning, Tahoe and semi-critical cleaning equipment: focuses on advanced cleaning solutions needed for the manufacturing of semiconductor chips. This segment has recorded over 70% of ACM’s total revenue in the last three years.
- ECP, furnace and other tech: provides specialized tools for front-end processing and packaging, including electrochemical plating (ECP) and furnace technologies. This segment recorded 18% of ACM’s revenue last year.
- Advanced packaging (excluding ECP), services & spares: covers advanced packaging tools, along with after-sales services and spare parts for semiconductor manufacturing equipment. The remainder of ACM’s revenues come from this segment.
Although ACM Research is listed in the US, most of its operations take place in China, with all tools manufactured in Shanghai. In 2020, the company initiated the construction of a 1,000,000 square foot production center in Shanghai, which is expected to begin operations this year.
The majority of ACM Research’s sales come from customers in Mainland China, a trend the company believes will continue in the foreseeable future. Despite its production being centered in China, ACM Research has established sales, marketing, and services teams across North America, Western Europe, and Southeast Asia to support expansion beyond mainland China.
ACM Research went public on the Nasdaq under the ticker $ACMR in 2017. In late 2021, the company also completed its IPO for ACM Shanghai and is now also traded on the Shanghai Stock Exchange.
What the market is saying:
$ACMR has been mentioned multiple times this year, especially back in late-February when its share price more than doubled within the month. The hype has since died down as $ACMR saw its share price retreat. Despite that, there have been recent threads focusing on its valuation, price movements and future prospects. Many believe that $ACMR may be undervalued, however some have voiced concerns about the fact that the majority of its operations are based overseas.
Source: quiverquant.com
Recent comments from Reddit:
“I think the company should do better with working capital management if they want to keep growing in a sustainable way without having to leverage the company in excess.
Other than that I like the technology, I like the sector, The margins are reasonable and the growth potential seems to be there.
For me is a company to follow.”
- MiltonMarkowitz
“I traded this from 12 and sold on way to 20. It’s revenue concentration in China was billed as a red flag but I viewed it as a positive in the lens of the trade war and China building out fabs in response. Asian countries like to use Asian suppliers so I figured ACMR would be uniquely positioned to service that demand.”
- AdMurky9329
Why $ACMR could be valuable:
Industry
ACM Research operates within the semiconductor industry, a crucial part of the global technology landscape. The semiconductor industry is responsible for producing the chips that power electronic devices from smartphones and computers to cars and industrial machinery. As the demand for advanced electronics continues to grow, so does the need for more sophisticated semiconductor manufacturing equipment. It is estimated that total revenues for the semiconductor industry would grow from $503B in 2023 to $980B in 2029.
Looking more specifically into semiconductor sub-industries, ACM Research specializes in providing capital equipment for semiconductor manufacturing. Based on third-party reports and customer information, ACM Research estimates that its current product portfolio addressed about $16B of the global wafer fab equipment (WFE) market in 2023.
However, according to Gartner, the market research agency ACM used in its analysis, the market for semiconductor manufacturing equipment has seen a decline in recent years. The total available global market for these equipment segments decreased by 11.4% from $21.2 billion in 2022 to $18.7 billion in 2023. This trend is expected to continue, with a further decrease of 2.8% to $18.2 billion in 2024.
Despite these market challenges, ACM Research expects sales to continue growing as it works towards gaining bigger market share in its niche industry. In fact, its recent quarterly reports show just that (more on that in the next section). Its long term goal is to gain majority (55%) market share for the cleaning and ECM segments in China, and between 15-20% in its markets outside of China.
Financials
In the last five years, ACM Research has been able to grow revenues between 40-65% annually. Additionally, revenues from all three of its segments grew between H1 2024 and H1 2023, showing growth not just overall but also within each of its product lines.
$ACMR’s annual revenues from 2017 to 2023, plus future guidance and targets:
Source: ACM August 2024 Investor Presentation
In addition to revenue growth, $ACMR has also successfully increased gross profit margins from 44% two years ago to 49.5% last year.
Given that information, perhaps it’s almost unsurprising that ACM Research has also grown net income over time.
$ACMR TTM quarterly net income from 2017 to most recent quarter:
Source: macrotrends.net
$ACMR’s balance sheet (for the period ending June 30, 2024) is also noteworthy. Its total current assets alone was at $1.35B – more than double its total current and long-term liabilities of US$666M. What makes it even better is that nearly one-third of its total liabilities is unearned revenue.
Unearned revenue is money a company receives from a customer before delivering the goods or services that the payment is intended for. It appears on the company’s balance sheet as a liability until ACM delivers what is required, which then gets it posted as revenues. A balance of unearned revenue can thus indicate future sales.
While $ACMR’s balance sheet shows strength, its cash flow statements in the last few years however may worry some investors. In the last four years, ACM has recorded negative operating cash flows, and much of ACM’s cash balance comes from an equity raise in FY 2020.
However, looking deeper into the numbers show that the negative operating cash flows come mainly from the increase in accounts receivables and inventory balance. Given ACM’s high-quality customer base, the level of bad debt may hopefully be minimal. ACM has also noted that it’s knowingly increased its finished goods inventory.
Price action
As mentioned previously, $ACMR saw its share price double within the month of February, before later retreating back to earlier levels. It’s now up just over 4% year-to-date. Current analyst price targets average out to $34.71, a significant upside to the current share price of $19.49.
What the risks are:
Export Controls: ACM has noted in its latest reports that the US’, The Netherlands’, and Japan’s semiconductor export controls have all adversely affected the company’s revenue and operations. Further export controls in these and other countries may threaten ACM’s business.
No plans for dividends: Despite its ability to generate profits, ACM Research has never paid dividends. Additionally, the company explicitly mentioned in its latest annual report that it had no intention of paying out dividends in the foreseeable future.
Domiciled outside the US: While ACM is listed on the Nasdaq, the vast majority of its operations happen outside of the US. This means ACM is exposed to various risks, such as geopolitical tensions, regulatory changes, and fluctuations in foreign exchange rates, which could impact its operations and financial performance.
Bottom line: ACM Research is a key player in the global semiconductor industry, providing advanced capital equipment and tools used in the production of semiconductor chips. It’s set lofty goals of gaining over 50% market share in China and 15-20% in the rest of the world. Over the past five years, ACM Research has achieved impressive annual revenue growth of 40-65% ACM’s balance sheet also looks strong, with $1.35 billion in current assets, more than double its total liabilities of $666 million, and a significant portion of these liabilities being unearned revenue, indicating future sales. $ACMR is currently trading flat for the year, with analyst price targets signaling over 70% potentially upside.
First Solar Inc. ($FSLR)
$231.07 – Share price at time of writing
Source: tradingview.com
Summary:
- Share price at the time of writing: $231.07
- First Solar Inc. ($FSLR) is a provider of solar panels built with a special type of technology called thin-film, which is more cost effective and efficient than the more common silicon-based solar panels.
- First Solar is poised for substantial growth, with 80.6 GW in total booking opportunities and a bookings backlog of 75.9 GW extending through 2030. By the end of Q2 2024, the company had secured net bookings of 3.6 GW, and its current production capacity of 7.1 GW is expected to double to 14.1 GW by next year.
- Recent years have been favorable for $FSLR, delivering some of its highest net income figures since going public. This was further bolstered by favorable government subsidies and incentives.
- $FSLR has seen strong share price performance in recent months, with consensus analyst price targets showing further potential upside.
What they do:
First Solar Inc. ($FSLR) is a global provider of solar panels and a builder of large solar power plants. It prides itself in its ability to manufacture solar modules with a special type of technology called thin-film, which is different from the more common silicon-based solar panels. This technology uses a material called cadmium telluride (CdTe), making their panels cheaper to produce and more environmentally friendly.
It generates revenues mainly from its modules business, which involves the manufacture and sale of the CdTe solar modules. First Solar generally prices and sells solar modules on a per-watt basis. In FY 2023, 99.3% of its revenues came from this segment, with the remainder from solar power systems and O&M services.
The company is one of the largest solar panel manufacturers in the world, with factories in the United States, Malaysia, and Vietnam. Besides making solar panels, First Solar also develops and constructs large-scale solar power plants.
First Solar operates globally, serving customers in many regions, including North America, Europe, Asia, and the Middle East. Their customers range from utility companies to businesses that require large amounts of electricity to operate. The company is dedicated to sustainability and innovation, focusing on making its products more efficient and affordable while reducing their environmental impact.
What the market is saying:
$FSLR has received a lot of attention on forums this year thanks to its strong share price performance. Most of the discussion is focused around its fundamentals, but there’s also lots of talk on the solar industry as a whole thanks to some recently implemented tariffs and subsidies.
Source: quiverquant.com
Based on discussions, many believe that First Solar has strong growth potential. However, some are wary that its present performance is heavily subsidized by tax credits and subsidies.
Some comments from Reddit:
“Strong financials, good efficiency, good margins. Strong guidance for this year. Although these numbers haven’t been very stable the years before. And all of their profit is going to capital expenditure (negative FCF), which is not necessarily a bad thing, but we’ll have to see how much it pays off.”
– usrnmz
“They are protected by tariffs and the beneficiary of tax credits under the inflation reduction act. Certainly untangle that, but they could still double earnings over the next three years even without those benefits.”
– Life-in-Quantum2074
Why $FSLR could be valuable:
Industry
First Solar operates in the solar energy industry, a rapidly expanding sector with significant incentives. As developed countries set ambitious goals to increase renewable energy capacity, solar and wind energy are leading the way due to their lower costs compared to other renewable sources. The global solar energy market is projected to grow by 7.3% over the next five years, creating a larger addressable market for First Solar.
Currently, First Solar’s operations are predominantly in the US, which accounted for 96% of its sales last year. In the US, the company benefits from government initiatives like the Inflation Reduction Act of 2022 (IRA), which offers tax incentives for solar module manufacturers, project developers, and owners. These incentives include a 30% investment tax credit for qualifying solar projects, extended production tax credits, and additional credits for projects meeting domestic content and location requirements. The IRA has increased demand for domestically manufactured solar modules, resulting in strong pricing in the U.S. market.
In addition to its strong U.S. presence, First Solar has recently expanded into India and Europe, both of which have set ambitious renewable energy growth targets and offer multiple subsidies and support programs.
First Solar estimates that it has total booking opportunities of 80.6 GW of module volume in the markets it operates in, with a bookings backlog of 75.9 GW through to 2030. To put that into perspective, as of the end of Q2 2024 (June 30), First Solar had recorded year-to-date net bookings of 3.6 GW and only has capacity to produce 7.1 GW at the moment. It’s currently in the midst of expansion which will see it have capacity for 14.1 GW by next year.
Financials
$FSLR first listed in 2006, and thus has a long history of being in operation. Admittedly, its revenues don’t exactly illustrate a linear progression, having years of outperformance, specifically in 2016, and years of lower revenues.
Interestingly, it’s seen the most consistent revenue growth in the last eight quarters.
$FSLR TTM revenues per quarter from 2009 to 2024:
Source: macrotrends.com
Similarly, $FSLR’s net income has been cyclical. It’s recorded years of net income and also years of net loss.
$FSLR TTM net income per quarter from 2009 to 2024:
Source: macrotrends.net
The last few years have been good to $FSLR, with some its highest historical net income numbers since its listing. However, it’s important to note that this may be bolstered by the US’ IRA initiative, which has seen $FLSR post income tax benefits every year since FY 2021.
First Solar’s FY 2023 balance sheet looks robust, with cash and cash equivalents near double current liabilities. The company’s current assets are also more than enough to cover its entire balance of liabilities. And similar to ACM Research ($ACMR) above, First Solar recorded a substantial unearned revenue balance of $2B (~54% of total liabilities), which tends to indicate future sales. Its FY 2023 cash flow statement also showed positive free cash flows. So far, First Solar has not paid out dividends or commenced a share buyback, instead choosing to reinvest every dollar into growing its business.
Price action
$FSLR has had a highly positive 2024, currently up over 34% year-to-date. Shares surged particularly in June, when it nearly hit its all-time high that it recorded way back in 2008. Despite its growth, consensus analyst price targets are currently at $284, representing further potential upside.
What the risks are:
Receiving heavy subsidies: The IRA has materially bolstered First Solar’s income statements thanks to tax benefits. First Solar may present the risk of lower earnings if these government incentives were to stop.
Inconsistent growth and profitability: Despite its long history of operations, its revenues have not grown consistently, and it has also flittered between net income and loss. While global focus on renewables has increased, this history may still be a sign of concern.
Increasing competition: While First Solar has a unique selling proposition with its unique thin-film technology, the amount of government subsidies and incentives has led to more market entrants in recent years. This may bolster the amount of competition that First Solar faces, which can lead to higher operating expenses and lower margins.
Bottom line: First Solar Inc. is a major global producer of solar panels and a developer of large-scale solar power plants, known for its use of cadmium telluride (CdTe) technology in thin-film solar modules, which are more cost-effective and environmentally friendly than traditional silicon-based panels. The majority of the company’s revenue, 99.3% in FY 2023, comes from its solar modules business. Operating worldwide, First Solar has a strong US presence and is expanding into markets like India and Europe, benefiting from government programs such as the Inflation Reduction Act of 2022. With a substantial backlog of bookings and ongoing expansion of its production capacity, the company is well-positioned to meet increasing demand. At its current share price, the consensus analyst price target shows potential further upside.
