AEM surges to one-month high on Intel expansion plans

• AEM Holdings Ltd (SGX: AWX) share price surged to a one-month high of S$4.17 on Wednesday (24 March 2021)
• The rally came after US PC chipmaker Intel announced a US$20 billion expansion plan
• Intel is a key customer of AEM, according to DBS analysts
• Looking ahead, analysts foresee a further 9.4% upside on the semiconductor play
• Trade AEM stocks with an IG account

AEM share price: what’s the latest?

Shares of electronics services provider AEM Holdings spiked up over 6% on Wednesday (24 March 2021), after US PC chipmaker Intel said it would be spending US$20 billion to build two new factories in Arizona.

AEM shares are trading at S$4.17 each as at 15:45 SGT. Roughly 13 million securities have exchanged hands so far on the counter, putting it among the day’s top 30 most traded stocks on the Singapore Exchange.

The stock is up nearly 16% year to date.

Why does the Intel announcement matter?

AEM is in the business of providing back-end testing solutions to semiconductor manufacturers like Intel.

According to DBS researchers, Intel is a key customer of AEM. The two work closely to design, manufacture and engineer test handlers. AEM also offers post-sales and field support services to Intel as part of the longstanding relationship.

This latest announcement, in which CEO Pat Gelsinger shared his ‘IDM 2.0 model’, bodes well for AEM as it signals Intel’s commitment to maintaining its market leadership and product pipeline.

The new factories will increase Intel’s manufacturing capacity, and be able to support the increasing requirements of Intel’s current products and customers, as well as provide committed capacity for foundry customers.

The company has also set its sights on becoming a major provider of foundry capacity in the US and Europe.

To achieve that, Gelsinger re-affirmed the company’s expectation to continue manufacturing the majority of its products internally. He added that the company’s 7nm development is progressing well, and expects to tape in the compute tile for its first 7nm client CPU in the second quarter of this year.

Analysts positive on semiconductor plays

For Intel, chip testing is an extremely crucial part of the manufacturing process, especially with chips being increasingly used in critical technologies like self-driving vehicles and industrial and medical equipment. As such, the company cannot take risks with testing.

Additionally, as a semiconductor foundry, Intel also sees upsides to lowering testing costs, as it will help to increase margins.

According to a DBS analyst report posted earlier this year, Intel incurs a 10% manufacturing cost if they use AEM’s solutions, which is lower than the 20% charge during traditional testing.

‘Given that AEM is able to offer such a competitive advantage to Intel and that they have been working for years to develop a customised solution for Intel, we don’t think that they will switch to a different test vendor,’ DBS analysts added in the note.

DBS remained positive on semiconductor plays, including AEM, as they are at the forefront of the technology value chain, as of 19 March 2021. The equity team reiterated a ‘buy’ call and price target of S$5.36 on the stock.

Across the board, the stock has received a consensus rating of ‘outperform’ alongside a 12-month target price of S$4.56. The target price represents an upside of 9.4% from the last traded price.

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