Aehr Test Systems Up 80% in July but Short Interest Persists

Key Points 

• Investors have been turning to small-cap stocks over the past few weeks, with the Russell 2000 Index up 11% so far in July.
• If you’re a growth investor you need to grab a copy of 24/7 Wall Street’s brand-new AI report, “The Next NVIDIA.” You’ll discover many other stocks that could benefit from supplying NVIDIA and the next wave of growth in AI trends. 

Aehr Test Systems (Nasdaq: AEHR) is one of the stocks giving small-caps a good name in July. With a market cap of $498 million, Aehr fits neatly within the small-cap range of $300 million- $2 billion. At its peak in July, Aehr stock rallied as much as 80% to over $21 per share, as the bulls flooded into this small-cap name, which supplies semiconductor test and burn-in equipment. As of July 25, the stock is up a lesser 53%, which is still impressive, to $17.28 as the sector rotation out of Big Tech names and into small-cap companies rolls on. While it’s unclear how long this market cycle will last, small caps are enjoying the spotlight while investors rake in returns. 

However, not all is as it seems, as there is also an underlying bearish sentiment surrounding many small-cap stocks, including Aehr Test Systems. While Aehr’s stock price nearly doubled in July, it’s important to note that a whopping 20% of shares outstanding are being shorted, a speculative bet among traders that the stock is overvalued and will decline in price. Year-to-date, Aehr stock has shaved off 34% from its value.

AI and EVs

Aehr Test Systems is looking to expand its share of the AI market and recently acquired Incal Technology to strengthen its market position. While the AI opportunity is immense, competition is fierce, pitting Aehr up against industry leaders like Teradyne (Nasdaq: TER | TER Price Prediction), with a market cap of $19.9 billion. As a result, the bears seemingly have good reason to short Aehr stock while it’s also understandable why bulls recognize potential.

Fremont, Calif.-based Aehr Test Systems is heavily concentrated in the electric vehicle (EV) market, providing wafer contractors that are used to test semiconductors in EVs. This specialization provides yet another catalyst for short-sellers, as demand for EVs has been softening of late. While Aehr Test is looking to diversify its revenue streams into additional AI chip applications, the bears may be circling due to a pullback in EV demand amid a slower transition to all-electric cars than many anticipated.

Meanwhile, the company has been winning contracts, and the order backlog is building. But its fiscal Q4 net revenue sank from $22.3 million to $16.6 million year-over-year. However, on a full-year basis, net revenue was a record $66.2 million, giving the bulls reason to be optimistic. One potential catalyst for the bulls is the anticipation around interest rate cuts this year, which could benefit Aehr in the areas of EVs, data centers and AI.