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Management indicated that its 2026 revenue forecast for data center is based on designs secured in 2025 plus continuing business, and Kelley said the company has “high confidence” in the forecast. He emphasized that the “biggest variable is the mix,” citing supply chain constraints that can drive sudden shifts in customer forecasts, making flexibility and responsiveness important.
Kelley attributed prior upside to customers building data center capabilities faster than originally forecasted and said Advanced Energy reacted by adding capacity. He said the company currently builds data center products at two primary sites—one in the Philippines and one in Mexicali, Mexico—and invested in both “capacity and capability” at those locations. He also said a new factory in Thailand is “ready to go later this year when we get the signal,” adding that the company has the “brick and mortar necessary” to address potential upside.
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On market share, Kelley said it was “hard to say” without numbers but that it “feels like we’re doing pretty well.” He emphasized that the company’s objective is not share gain, but to keep margins “very healthy,” with share gains a byproduct.
Kelley also addressed longer-dated product transitions, including 800-volt designs. He said the company has “a number of development projects” for 800V applications, but does not expect revenue from them this year. Assuming 800V develops as expected, he said initial revenue would likely come in 2027, becoming “more serious” in 2028 and 2029.
On competitive positioning, Kelley said Advanced Energy is selective about where it engages and that its win rate is “close to 100%.”
Oldham described margin improvement in the data center business over time. He said that when the company entered the market—referencing the early years after the Artesyn acquisition—margins in those products were “probably in the teens.” Since then, he said margins have improved to “approaching corporate average,” though the company has not broken out a precise figure. Looking forward, Oldham said the goal is to hold margins near corporate average or better, with potential to capture more value as products move to higher-power ranges.
Oldham also said the increasing scale of data center revenue has reduced its dilutive effect on overall company margins. He noted data center is now roughly 37% to 38% of total revenue versus the low 20% range about a year earlier, while the company has still met its margin goals through manufacturing efficiency and other measures.
On tariffs, Oldham said the tariff regime began in April and has been “pretty complex” to navigate. He said Advanced Energy has been aggressive in optimizing supply-chain flows with customers to avoid unnecessary tariffs and highlighted Mexicali as helpful because many products can qualify under USMCA. Oldham said tariffs are currently about a 100 basis point headwind to gross margin, varying by quarter with mix and timing. He added that the company is working to mitigate the impact and offset it through manufacturing efficiency, material cost reductions, and other levers. Oldham said if the tariff impact were excluded, the company would be above the 40% gross margin level referenced in discussion of its near-term outlook.
Kelley said management’s optimism in semiconductor equipment has increased based on leading-edge logic and memory activity, pointing to TSMC and statements from SK Hynix and Samsung. He said these dynamics have contributed to higher wafer fab equipment (WFE) forecasts, driven especially by DRAM and leading-edge logic expansion.
For 2026, Kelley reiterated the company expects it to be a growth year and said confidence has increased in recent months based on customer commentary. He also said the company is enthusiastic about new products, stating that contributions from Everest and eVoS should increase, with the impact becoming “significant in 2027 and 2028.”
Management discussed timing for a broader semiconductor recovery. Oldham said that following more bullish commentary at SEMICON West in October, the outlook had not yet translated into orders, and it often takes time for optimism to flow through OEMs to sub-suppliers. He said the company previously characterized the near term as “sideways” in the fourth quarter and first quarter, with more upside expected in the second half, while acknowledging improved market commentary could potentially pull timing forward.
On memory, Kelley said the “biggest driver” is DRAM demand tied to High Bandwidth Memory consumption. He characterized NAND more as an upgrade proposition and noted Advanced Energy is less indexed to NAND because of a bias toward dielectric etch, which he said is not currently a company strength, though it could become more relevant over the next few years.
Regarding new technologies, Kelley said eVoS, Everest, and NavX were launched in 2023 and have been well accepted, but require a long qualification cycle through OEMs and fabs. He reiterated prior expectations of $10 million to $20 million in revenue from those technologies in 2025, with acceleration in 2026 and a more significant contribution in 2027 and 2028 as leading-edge capacity expands.
Kelley described industrial and medical as the company’s “most stable pillar” over time, providing balance against the cyclicality of semiconductor and data center markets, though he said the segment experienced a major inventory correction following COVID-era supply chain disruptions. He said inventory issues now appear to have abated, noting distributors reduced inventories for six straight quarters and are now at an “equilibrium level,” with order rates increasing. Kelley said the recovery is measured and reaching equilibrium, and he expects design activity over the past two years to support share gains.
He also said aerospace and defense exposure is “relatively low” today but expects it to change. Kelley said the company participates in the commercial off-the-shelf (COTS) portion of military demand and expects aerospace and defense revenue to increase “significantly in 2026,” while adding he does not yet know where it will rank within industrial/medical.
On product positioning, Kelley said the company’s revenue is about 70% sole-source and that it has a goal of reaching 80%. He said semiconductor equipment is “almost 100%” sole source, industrial/medical is also largely sole source due to customization needs, and data center has historically had the most multi-source exposure. Kelley said the company has made progress converting data center offerings from multi-source to single-source or limited-source arrangements, which also supports margin improvement.
Oldham said the company expects operating expense leverage as revenue grows, describing a model of increasing OpEx at roughly half the rate of revenue growth. He said the company expects 35% to 45% operating leverage at the operating income level. He also cited balance sheet strength, noting $750 million in cash and approximately $565 million in debt as of the end of September.
On M&A, management said it remains active but has faced valuation gaps between buyers and sellers. Oldham said that gap has narrowed and the company hopes to complete “a deal of significance” this year. He said priorities include building scale in industrial/medical and pursuing technology tuck-ins to fill capability gaps, similar to an acquisition completed last year.
Advanced Energy Industries, Inc is a global technology company specializing in precision power conversion, measurement, and control solutions. The company designs and manufactures a broad portfolio of products including high-voltage power supplies, RF and microwave generators, digital power controllers, reactive gas control systems, and thin film measurement instruments. These solutions enable advanced processes in semiconductor fabrication, flat panel display manufacturing, industrial coating, data storage, telecommunications and medical device production.
Founded in 1981 and headquartered in Fort Collins, Colorado, Advanced Energy has grown through strategic product development and international expansion.
The article “Advanced Energy Industries Touts Data Center Growth, Sees 2026 Semi Upswing at Needham Conference” was originally published by MarketBeat.
