ACM Research (ACMR) faces risks due to its heavy reliance on China, but the company is diversifying into U.S. and European markets to mitigate this. 

Its advanced cleaning technologies give it a competitive edge, and the company has shown strong financial performance, with 40% year-over-year revenue growth. 

ACM is expanding into the advanced packaging market and investing in R&D to drive innovation. 

Despite concerns over its Chinese exposure and the cyclical nature of the semiconductor industry, ACM’s growth potential and low valuation may present an undervalued opportunity.

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Many companies are facing challenges due to their heavy reliance on China for revenue. This concentration poses a real risk with geopolitical tensions and souring U.S.-China relations.

Some are taking steps to mitigate this risk by expanding into the U.S. and Europe, securing new orders, and entering discussions for additional contracts.

Efforts to diversify their revenue sources are starting to take shape, but these initiatives are still in the early stages.

Over time, this should help balance revenue between China and other global markets, but for now, the risk remains real.

ACM Research (ACMR), a semiconductor equipment company, stands out due to its niche focus on advanced cleaning technologies.

These technologies, including SAPS (Space Alternated Phase Shift) and TEBO (Timely Energized Bubble Oscillation), give ACMR an edge by offering superior cleaning efficiency, crucial for semiconductor manufacturing.

As chip production ramps up, ACM is well-positioned to benefit from this growing demand.

The company has shown strong financial performance, reporting a 40% year-over-year revenue growth in the last quarter. ACM raised its full-year revenue guidance to $695 – $735 million, reflecting confidence in its growth outlook.

The market, however, remains cautious, pricing ACM at a low Uniform 10x forward P/E due to concerns over the cyclical nature of the semiconductor industry and Chinese exposure.

ACM’s push into international markets is key to its growth strategy. Historically reliant on China, the company has been diversifying, with new orders from U.S. and European customers.

This move reduces dependency on China and spreads risk. With its expansion into the U.S. and Europe, the company aims to tap into growing demand outside of China, which is vital given ongoing geopolitical tensions.

The company is also investing heavily in research and development, dedicating about 10% of revenue to innovation.

This focus has led to over 500 patents, and its recent introduction of the Ultra C bev-p bevel etching tool demonstrates its commitment to staying ahead of the competition.

Furthermore, ACM is now moving into the advanced packaging market, addressing the demand for smaller, more powerful devices used in AI and high-performance computing.

These factors enabled the company to achieve a 12% Uniform return on assets ”ROA” and 69% asset growth last year.

While market concerns over ACM’s exposure to China and the cyclical semiconductor sector remain, the company’s strong financials, innovative products, and diversification efforts suggest significant growth potential.

At its current valuation, ACM may be an undervalued opportunity in the semiconductor equipment space.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research