For data centres, Intel will build custom x86 CPUs that Nvidia will integrate into its AI infrastructure platforms, while Intel will build x86 systems on chips that integrate Nvidia RTX GPU chiplets for personal computing.
Together, Tan sees that these developments should strengthen Intel's positioning in the x86 market, “supporting its turnaround story” and creating downstream demand for testing, where AEM is the plan of record provider for Intel's testing and thus, stands to benefit from higher test requirements.
She adds: “Implications for AEM are positive, though we note the benefit will be volume dependent and subject to ramp-up timing. The extent of the uplift will hinge on production scale and the speed of execution, but we believe the outlook for the group brightens.”
Additionally, should Intel successfully scale up on its new architectures with Nvidia, AEM could see higher demand for test equipment and consumables. While no product release timelines have been disclosed, Tan does note that there “could be a time lag” as new designs are qualified and production ramps up, suggesting that the impact on AEM to be more visible in the medium-term.
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She writes: “Nonetheless, given Nvidia’s scale in the data centre market, the collaboration is likely to be meaningful, and particularly relevant for AEM once the current non-cancellable purchase orders with Intel are fully drawn down through FY2027.”
Tan adds that there could also be additional upside if the Intel-Nvidia partnership were to see Nvidia outsourcing chip manufacturing to Intel Foundry, which would further drive demand for AEM's solutions. Presently however, she notes that there is “currently no indication” that this will materialise.
“Notwithstanding near-term volatility, the semiconductor industry is well poised for growth, owing to the push towards digitalisation,” notes the analyst.
AEM is also “at the cusp” of a multi-year rollout for new customers. The group’s AMPS-BI product won an additional project to test next generation data centre devices in the 4Q2024. Its PiXL thermal management solution is also deployed for an AI customer, and the group has also expanded its installed base for its memory customer to test its GDDR6 device.
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On this, Tan writes: “We believe that AEM is near an inflection point and foresee its customer diversification strategy yielding more significant returns in the years ahead.”
The analyst’s target price is based on 25 times blended FY2026 earnings versus the previous peg of 20 times on FY2025/FY2026 earnings to reflect a re-rating in Singapore small-mid caps supported by the equity market development programme (EQDP) and AEM’s turnaround story in FY2026.
Key risks noted by Tan are AEM’s single-customer concentration risk, geopolitical events and a prolonged slowdown in the macroeconomy.
As at 3.15pm, shares in AEM are trading 25 cents higher or 15.9% up at $1.82.
