Advanced Energy Industries, Inc. (AEIS) Q2 2026 Earnings: Revenue $574M (+30.0%)
AEIS — Q2 2026 Financial Report Analysis
Q2 · Fiscal year 2026 · Published by Pham Hop
Advanced Energy's Q2 2026 revenue rose 30% to a record $574.1M as chip-equipment sales jumped 33%; non-GAAP EPS was $2.74, but a $31.8M bond-exchange charge cut GAAP EPS to $1.29 and first-half free cash flow was about zero.
Revenue
$574M
+30.0% YoY
Net income
$55M
+113.7% YoY
Diluted EPS
$1.29
+92.5% YoY
Operating margin
16.6%
This period vs a year ago
Same period last year
This period
Revenue▲+30.0%
≈$442M
$574M
Net income▲+113.7%
≈$26M
$55M
Diluted EPS▲+92.5%
≈$0.67
$1.29
Year-ago figures (≈) are worked out from the growth rate the company reported. Each row has its own scale.
Record quarter, with chipmaking-equipment demand doing the heavy lifting
Advanced Energy makes the power supplies that sit inside other companies' machines: the precision power units that drive plasma in chipmaking tools, the power shelves in AI server racks, and power modules for factory, medical and telecom equipment. In the second quarter of 2026 (April–June) revenue rose 30% from a year earlier to $574.1 million, a company record and above the top of its own $520–560 million guidance range. The biggest dollar gain came from Semiconductor Equipment, which grew 33% to a record $278.3 million — and jumped 27% from the first quarter alone — which the 10-Q attributes to "strengthening equipment demand driven by investments in AI." Profit grew much faster than sales: GAAP operating margin more than doubled, from 7.2% to 16.6%.
At a glance
Revenue $574.1M, +30% YoY: every one of the four end markets grew, but chip equipment (+33%) and data center (+35%) made up nearly 90% of the $132.6M increase.
Non-GAAP gross margin 41.9% (vs 38.1%): the share of each sales dollar left after production costs is at a multi-year high, though 1.2 points of the improvement came from tariff refunds, which are not a recurring source of margin.
GAAP EPS $1.29 vs non-GAAP $2.74: the gap is mostly a one-off $31.8M charge ($0.75 a share) for refinancing the company's convertible bonds, not a problem in the operating business.
The numbers
Metric
Q2 2026
Q2 2025
YoY Change
Revenue
$574.1M
$441.5M
+30.0%
Gross margin (GAAP)
41.1%
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37.0%
+4.1 pts
Gross margin (non-GAAP)
41.9%
38.1%
+3.8 pts
Operating income (GAAP)
$95.1M
$31.6M
+201%
Operating margin (GAAP)
16.6%
7.2%
+9.4 pts
Operating margin (non-GAAP)
21.9%
14.6%
+7.3 pts
Income from continuing operations
$54.5M
$25.5M
+113.7%
Diluted EPS, continuing ops (GAAP)
$1.29
$0.67
+92.5%
Diluted EPS (non-GAAP)
$2.74
$1.50
+82.7%
Semiconductor Equipment revenue
$278.3M
$209.5M
+32.8%
Data Center Computing revenue
$191.5M
$141.6M
+35.2%
"Non-GAAP" is the company's adjusted view, which strips out stock-based pay, amortization of past acquisitions, restructuring and one-off items (all reconciled in the earnings release). Net income including a small loss from the discontinued solar-inverter business was $54.1M, or $1.28 a diluted share.
For the first half, revenue was $1,085.1M (+28%), GAAP operating income $163.4M (vs $62.2M) and GAAP diluted EPS from continuing operations $2.88 (vs $1.33).
Where the growth came from
End market
Q2 2026
Q2 2025
YoY
Q1 2026
QoQ
Share of revenue
Semiconductor Equipment
$278.3M
$209.5M
+32.8%
$219.4M
+26.8%
48.5%
Data Center Computing
$191.5M
$141.6M
+35.2%
$194.2M
-1.4%
33.4%
Industrial and Medical
$80.0M
$68.6M
+16.6%
$72.0M
+11.1%
13.9%
Telecom and Networking
$24.3M
$21.8M
+11.5%
$25.4M
-4.3%
4.2%
Total
$574.1M
$441.5M
+30.0%
$511.0M
+12.3%
100%
Semiconductor Equipment is the business most tied to the chip industry's spending cycle: Advanced Energy sells the RF and DC power systems that toolmakers build into etch and deposition machines. The 10-Q says demand in the first half came from "leading-edge devices in logic and memory used in AI applications" and that management expects these conditions to continue for the rest of 2026. The quarter-on-quarter jump from $219.4M to $278.3M is the sharpest move in the table and is what carried revenue past guidance.
Data Center Computing (power supplies for servers and AI racks) grew 35% from a year earlier on "increased AI investments by leading hyperscale customers" — the very large cloud operators — and on earlier design wins now shipping. It was flat against the first quarter, when it had more than doubled year on year, so the step-up in growth this quarter came from chip equipment, not from data centers.
Industrial and Medical grew 17%, which the filing puts down to customers finishing their inventory drawdowns ("inventory rebalancing") and a better demand environment — a cyclical recovery rather than a new product story.
Telecom and Networking is small (4% of sales); the 11.5% gain came from AI-related networking applications.
The mix is now concentrated: 82% of revenue comes from two markets whose demand is tied to AI spending (chip equipment and data center). That drove this quarter's growth, and it is also the main concentration risk if AI capital spending slows.
Why margins widened so much
Gross margin rose from 37.0% to 41.1%. The 10-Q gives the reasons: "improved mix, the impact of tariff refunds for 120 basis points, and higher volume." Mix here means a larger share of newer, higher-margin products; volume means fixed factory costs are spread over more units.
Operating expenses grew far more slowly than sales — total operating expenses rose 7% ($131.8M to $141.0M) against 30% revenue growth — so most of the extra gross profit fell through to operating income. R&D rose 10% to $65.0M and SG&A 15% to $69.4M, both mainly on higher pay including stock-based compensation. Restructuring charges also fell, to $1.4M from $7.0M.
What the headline numbers hide
Tariff refunds lifted the margin and are not excluded from the adjusted figure. The 1.2-point tariff-refund benefit sits inside both GAAP and non-GAAP gross margin (the non-GAAP adjustments to gross profit are only stock-based pay and facility-transition costs). (The 10-Q's sentence sits beneath both the quarter and first-half margin tables.) Taking it as a quarter figure, gross margin without it would have been roughly 39.9% GAAP / 40.7% non-GAAP by our arithmetic — still up sharply on last year, but the 41.9% headline is flattered.
The GAAP vs adjusted gap is large this quarter, and mostly one-off. Non-GAAP net income was $112.2M against $54.5M GAAP. The biggest items: the $31.8M loss on "induced conversion" of the 2028 convertible notes (a one-time cost of persuading bondholders to exchange early, which is also not tax-deductible and pushed the effective tax rate to 18% from 13%), and $21.4M of stock-based compensation (up from $13.6M, a recurring cost that the adjusted number ignores).
GAAP EPS actually came in below guidance. The company had guided Q2 GAAP EPS to $1.54 ± $0.23 (low end $1.31); it reported $1.29. The $0.75 bond-exchange charge explains the miss — without it GAAP EPS would have been about $2.04 — but it's worth knowing the "above guidance" claim applies to non-GAAP EPS ($2.74 vs a $2.18 ± $0.25 range) and revenue.
Share dilution held back EPS. Diluted share count rose to 42.3M from 37.8M (+12%). Part of that is the ~2.0M new shares issued in the bond exchange; part is accounting for the convertible bonds as if converted now that the share price is far above their conversion price. That's why GAAP EPS rose 92% while income from continuing operations rose 114%.
Cash conversion is weaker than profits suggest. First-half operating cash flow from continuing operations was $80.0M against $121.8M of income from continuing operations — about two-thirds. Working capital absorbed $149.1M: receivables rose 24% since December ($325.2M to $403.6M) and inventory 31% ($411.2M to $538.1M), versus 28% first-half revenue growth. The 10-Q says the inventory build supports "anticipated future demand." Q2 alone was better (a record $86M of operating cash flow, after a $6M outflow in Q1), but capital spending also doubled to $86.1M in the half (vs $42.0M) for factory capacity and a new ERP system, so first-half free cash flow was roughly zero (-$6.1M).
The balance sheet got a new bond
In May the company sold $1.15 billion of 0% convertible notes due 2031 (conversion price about $508.78 a share, with a capped call that offsets dilution up to $678.38) and used part of the proceeds to retire $438.3M of its 2.5% 2028 notes for about $442.4M in cash plus roughly 2.0M shares. At June 30 it held $1,396.5M of cash against $1,264.2M of debt on the balance sheet ($136.7M of 2028 notes and $1.15B of 2031 notes at principal), with nothing drawn on its credit facility. The trade: lower interest cost (zero coupon) and a longer maturity in exchange for more potential dilution if the share price keeps rising. The company says it will use the rest of the proceeds for "general corporate purposes," which leaves open what the cash — up $605M since December, mostly from this financing — will be used for.
Takeaway: This was a chip-equipment quarter. Semiconductor Equipment revenue rose 27% in three months and is now almost half of sales, while data center revenue paused after a year of doubling. Margins are genuinely higher — mix and volume did most of the work — but the filing credits 1.2 points of the gross-margin gain to tariff refunds, and first-half free cash flow was about zero because inventory, receivables and capital spending are all growing faster than revenue.
Outlook
For the third quarter, management guides revenue to $640M ± $20M (about +11% from Q2 at the midpoint and roughly +38% from $463M in Q3 2025), GAAP EPS from continuing operations of $2.38 ± $0.25, and non-GAAP EPS of $3.00 ± $0.25 (vs $1.74 a year ago). CEO Steve Kelley said "demand continues to strengthen across all of our markets" and that the company expects "profitable growth into 2027."
The 10-Q also flags a cost risk: AI-driven demand is "extending lead times and increasing prices of certain components," and the company is trying to recover those costs through price increases — not material yet, it says, but a potential pressure on the margin gains.
Our read: the Q3 guide implies another step up, so the questions for the Q3 report are (1) whether gross margin holds near 41–42% once tariff refunds fade out of the comparison, (2) whether data center revenue resumes growing after this quarter's pause, and (3) whether the inventory build turns into cash — operating cash flow catching up with earnings would show the demand is real rather than stock building ahead of it. With nearly half of sales tied to semiconductor capital spending, AEIS will also swing more than most on any turn in the chip-equipment cycle.