HomeMarket NewsThe Rise of ACM Research: A Semiconductor Cinderella Story

The Rise of ACM Research: A Semiconductor Cinderella Story

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As 2024 marches forward, a new wave of investor enthusiasm sweeps through the semiconductor space. Market giants like Nvidia and Advanced Micro Devices, along with their AI ally Super Micro Computer, have all seen remarkable surges. Not to be left behind, small-cap contender ACM Research (NASDAQ: ACMR) is stealing the spotlight, climbing an impressive 50% this year alone and a jaw-dropping 270% since 2023 commenced (data as of March 6, 2024). With a promising growth trajectory and positive profit outlook, ACM Research is setting the stage for a potential Cinderella story in the world of chip manufacturing equipment. The burning question remains, can this quantum leap be sustained?

The Unconventional Business model That Lies Beneath a Gleaming Stock Chart

In response to evolving export controls on cutting-edge semiconductors bound for China, the U.S. has tightened its reins. Acknowledging the importance of a broader spectrum of semiconductor types, including those for electric vehicles and industrial machinery, China has nurtured its chip manufacturing ecosystem to support these โ€œmatureโ€ chip variants. Enter ACM Research (ACMR), a key player providing essential equipment for chip production.

ACMRโ€™s specialized machines play a crucial role in cleaning silicon wafers during various manufacturing processes. While the AI chip market commands the spotlight, other sectors like power management devices, sensors, and basic logic and memory chips undergo multiple procedural stages before being transformed into chips. ACMRโ€™s arsenal encompasses machinery catering to diverse semiconductor needs, offering robust support in a competitive landscape dominated by industry titans like Lam Research and Tokyo Electron.

With a remarkable 43% surge in sales to $558 million in 2023, including a staggering 56% spike in Q4, ACM Research is making its presence felt. Forecasts suggest an additional upswing of up to 30% in revenue for 2024, with targets ranging from $650 million to $725 million. Impressively, despite ACMRโ€™s Silicon Valley roots, the vast majority of its sales are attributed to ACM Shanghai, its subsidiary which went public in China a few years back. Transparency is paramount, and ACMR is candid about this unique facet, prominently displaying it on its investor relations homepage.

While the geopolitical landscape looms large as a potential red flag for ACMR investors due to heightened uncertainties, the company remains steadfast in navigating these turbulent waters without triggering any alarm bells regarding U.S. export controls compliance.

Timing the Entry: Is Now the Right Moment to Join the Party?

ACMRโ€™s financial strides are commendable, trading at 24 times trailing-12-month earnings per share (EPS) and a modest 19 times EPS based on 2024 consensus estimates. For a rapidly expanding entity operating in the cyclical semiconductor domain, ACM Researchโ€™s valuation appears attractive. With a fervor for all things semiconductor pervading the market, it is challenging to predict an imminent peak for stocks like ACMR. The industryโ€™s long-term prospects are tantalizing, with global players vying to enhance semiconductor manufacturing resilience post-pandemic, boding well for ACMRโ€™s growth runway.

This optimistic trajectory is not without its costs, however. ACMR has been operating at a loss on a free-cash-flow (FCF) basis due to sizable capital outlays necessitated by its expansion spree. Noteworthy is the fact that positive generally accepted accounting principles (GAAP) net income and EPS mitigate this shortfall, as capital expenditures used to compute FCF are spread over time.

A picture is worth a thousand words, and the visual depiction of ACMRโ€™s net income over the trailing twelve months validates its growth trajectory:

ACMR Net Income (TTM) Chart

Data by YCharts.

While geopolitical hazards loom large on the horizon, ACM Researchโ€™s financial ascent propels it into the limelight. The tale is tantalizing, sparking intrigue and capturing the imagination of investors. A fairy tale ending may be some way off, but ACM Researchโ€™s narrative is one to watch keenly as it unfolds.

Is ACM Research the right investment option for you, especially at this juncture?

Prior to diving into ACM Researchโ€™s stocks, itโ€™s prudent to consider this:

The seasoned analyst team at Motley Fool Stock Advisor has identified what they deem the 10 most promising stocks for investors to currently focus on. Interestingly, ACM Research did not clinch a spot amidst the top 10, potentially hinting at a promising crop of opportunities that could yield exceptional returns in the years to come.

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Nicholas Rossolillo and his clients have holdings in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and endorses Advanced Micro Devices, Lam Research, and Nvidia. Super Micro Computer is also recommended by The Motley Fool. The Motley Fool abides by a strict disclosure policy.

The perspectives and opinions expressed here are those of the author and may not necessarily align with those of Nasdaq, Inc.

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