Advanced Energy Industries (NASDAQ:AEIS) reported record third-quarter 2026 results that exceeded the high end of its guidance, as demand strengthened across semiconductor, data center computing, industrial and medical markets.
Revenue rose 21% sequentially to $696 million, an increase of more than 50% from a year earlier. Non-GAAP earnings per share more than doubled year-over-year to $3.65, compared with $2.74 in the second quarter and $1.74 in the prior-year period. The company said higher volume, manufacturing efficiency and operating leverage supported the results.
“Strong factory execution enabled us to meet increased customer demand,” President and CEO Steve Kelley said. “Revenue in each of our target markets grew sequentially and year-over-year.”
Margins and Cash Flow Reach New Highs
Third-quarter gross margin was 42.1%, up 300 basis points from a year earlier. Excluding the benefit from second-quarter tariff refunds, gross margin expanded 140 basis points sequentially, driven by higher volume and manufacturing efficiency, according to Executive Vice President and CFO Paul Oldham.
Operating income reached a record $170 million, up 118% from the prior year, while operating margin rose 760 basis points year-over-year to 24.4%. Adjusted EBITDA was $182 million. Operating cash flow from continuing operations totaled $66 million as the company continued to invest in inventory intended to support anticipated customer ramps.
Advanced Energy ended the quarter with $1.42 billion in cash and equivalents and net cash of $159 million. After quarter-end, the company redeemed the remaining $136 million of its 2028 convertible senior notes. It also resumed share repurchases, buying approximately $30 million of common stock during October at about $241 per share.
The company spent $31 million on capital expenditures during the quarter and now expects full-year 2026 capital investments toward the low end of its prior $180 million to $195 million range. Management said elevated investment will continue through 2027 as it expands production capacity.
Semiconductor and Data Center Revenue Set Records
Semiconductor revenue reached a record $322 million, rising 16% sequentially and 64% year-over-year. Management attributed the growth to demand for leading-edge equipment, increasing etch and deposition intensity, and expanding system-power revenue.
Kelley said Advanced Energy secured several plasma-power design wins for advanced-node processes during the quarter following multiyear development efforts. The company expects those programs to begin contributing as leading-edge production ramps in 2027. It also won additional semiconductor-test opportunities, where management sees demand for high-power-density and high-efficiency solutions used to test AI chips and modules.
Data center computing revenue also reached a record, totaling $256 million. That represented growth of 34% from the second quarter and 49% from the prior year. The company cited stronger customer demand and the initial ramp of new programs.
Management said its hyperscale customer business continues to grow and that several new programs are expected to contribute through 2027 and 2028. The company also added new “second-wave” data center customers, including campus, enterprise, networking and neocloud customers. Kelley said these customers could eventually generate more than $300 million in annual revenue by 2029, though the company is not relying on substantial second-wave revenue to meet its 2027 outlook.
At the OCP Global Summit, Advanced Energy displayed its 800-volt Power Distribution Board, which it said offers modular customization for evolving data center power architectures. The company also highlighted liquid-cooled power technology applicable to both 50-volt and 800-volt systems.
Factory Expansion and Supply-Chain Planning
Advanced Energy said its new Thailand factory has begun generating revenue, with two data center customers already qualified. Kelley said two of the company’s top semiconductor customers are expected to qualify the site within the next two to three months.
The 500,000-square-foot Thailand facility is intended to become the company’s largest factory. Advanced Energy is also increasing output and expanding its footprint in the Philippines, Malaysia and Mexico. Management said it remains on track to expand total annual revenue-generating capacity to more than $5 billion by the end of 2028.
The company acknowledged continuing supply constraints, particularly involving certain integrated circuits, printed circuit boards and specialty ceramics. Kelley said Advanced Energy has used strategic inventory, sourcing efforts and surge production capacity to mitigate shortages, although it has incorporated some expected constraints into its fourth-quarter and 2027 forecasts.
Outlook Raised for 2026, Robust Growth Expected in 2027
For the fourth quarter, Advanced Energy forecast revenue of approximately $735 million, plus or minus $25 million, and non-GAAP earnings per share of $3.90, plus or minus $0.30. The company expects gross margin of 42% to 42.5% and operating expenses of $126 million to $128 million, primarily reflecting new-product investments.
Management raised its full-year 2026 revenue growth outlook to around 40%, from a previous target in the low-to-mid-30% range. It now expects data center computing revenue to grow in the high-50% range for the year and said semiconductor revenue is projected to grow more than 60% year-over-year in the second half.
Oldham said the company sees 2027 revenue growth “directionally” around 30%, while cautioning that supply availability and product transitions create uncertainty. Management expects industrial and medical growth to trail semiconductor and data center growth, while telecom and networking is expected to be roughly flat next year.
Advanced Energy said it has line of sight to gross margin above 43%, supported by higher-value products, factory efficiency and volume. Management also said it remains active in evaluating acquisitions that meet strategic and financial criteria.
About Advanced Energy Industries (NASDAQ:AEIS)
Advanced Energy Industries, Inc develops and manufactures precision power-conversion, measurement and control technologies. Its products are designed to regulate, transform and deliver electrical power with high levels of accuracy and reliability in demanding industrial applications.
The company’s portfolio includes direct-current and alternating-current power supplies, radio-frequency power systems, high-voltage power supplies, thermal-management equipment, power control modules, and measurement and control instruments.
