Most investors on Wall Street are aware of Nvidia (NASDAQ:NVDA | NVDA Price Prediction), AMD (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), and the like. However, have you looked into ACM Research (NASDAQ:ACMR)? Very few will say yes, as the company is still rather under-the-radar.
I called it out back in August 2023 as a stock with massive upside potential, and it has appreciated by nearly 300% since then. I believe it can still 5X from here, considering the growth of the business and a mismatch between the company’s U.S. arm and the Chinese arm.
Let’s first take a look at what this company does before we dive in further.
ACM Research is the best of both worlds… sort of
It is a U.S.-based company that sells semiconductor production equipment with a focus on single-wafer wet cleaning tools used to improve wafer yield during chip manufacturing.
While it is U.S.-based, the main business is actually in China. It holds a dominant position in the country, as the U.S. government has restricted other American competitors like Lam Research (NASDAQ:LRCX) and Screen Holdings from selling advanced cleaning tools to China due to export controls.
This is where things start to get interesting, as restrictions have allowed ACM to capture significant market share in China as Chinese fabs seek alternative suppliers. ACM Research owns a Chinese arm called ACM Research (Shanghai). It is a Chinese company and does not face restrictions inside China, so you do get the best of both worlds.
The “mismatch” that can cause ACMR stock to 5X
Last year, Kerrisdale Capital pointed out the large discrepancy between the valuation of ACM Research (Shanghai) and the main U.S. arm. The Chinese arm has a market capitalization of CNY 102.01 billion, or $14.65 billion. Remember, this is actually a company that is 74.6% owned by ACMR.
In U.S. markets, ACM Research has a $3.32 billion market cap. Hence, this Chinese portion alone is worth 3.3 times more!
ACM Research Shanghai has appreciated by 112% over the past year, whereas ACMR stock has appreciated by 175.2% in the same period. Wall Street is slowly closing the gap, but there’s still more room to go.
According to Kerrisdale Capital, “Billions of dollars in revenue and a $10+ billion market capitalization is our base case forecast”. I agree, and I’d go a step further and say ACM Research can reach $20 billion in the next 5 years.
Why ACM Research can post explosive growth
China is working around the clock to maximize domestic chip production. Cleaning tools are essential for semiconductors, and restrictions on China make it an imperative for the country to rely on domestic companies. ACM Research Shanghai is still majority American-owned, but it is a Chinese business and gets treated like one, managing to capture most of the market there.
Thus, the investments China is pouring into its chip industry will translate into growth for ACM Research.
Analysts expect revenue to reach $1.06 billion in 2026, up 17%. EPS is expected to cross $2, possibly as high as $2.4. Despite the stock having solid performance over the past year, you’re still paying less than 25 times forward earnings. Plus, once you factor in the ACM Research Shanghai ownership, you’re paying bargain-basement prices.
How high can ACMR stock go this year?
The stock price has been accelerating exponentially over the past few months and crossed $50. It has the potential to surpass $100 this year and perhaps higher if the broader market cooperates with the trend.
However, if there is a slowdown in the AI rally, it can turn into a setback. I still believe that ACMR stock is undervalued, and building up a large position here will end up being fruitful. I’d treat any corrections as a buying opportunity.
There are only 6 analysts covering the stock, and their price targets remain out of touch. The highest price target is just $40, with the average price target at $38. ACMR stock has consistently outperformed the Wall Street expectations, and the valuation mismatch can keep carrying it higher.
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