Israeli chip company drops after earnings report: here is the reason
The measurement equipment manufacturer from Rehovot recorded record revenue and profit, beat analyst forecasts, and presented a forecast suggesting continued growth — but investors were still disappointed. What is behind the numbers?
Nova, the manufacturer of measurement and control systems for the chip industry from Rehovot, reported a second quarter that was a record in every respect, surpassed market expectations, and provided a forecast that continues the momentum. However, investors are disappointed by one figure, and the stock is weakening by about 4% in pre-market trading in the USA.
Revenue for the quarter totaled 255 million dollars, an increase of 8% from the previous quarter and 16% compared to the same quarter last year. Analysts expected 250.33 million dollars. A record was also recorded on the bottom line: adjusted net profit (Non-GAAP) reached 86.5 million dollars, or 2.51 dollars per share, compared to an expectation of 2.41 dollars per share. GAAP profit stood at 75 million dollars, or 2.2 dollars per share.
What is driving the growth? Nova points to two growth directions that are actually the same big story: artificial intelligence. On one hand, record revenue from solutions for advanced logic, against the backdrop of the technological transition to Gate-All-Around architecture and the demand for chips in the smallest processes.
On the other hand, record revenue from Advanced Packaging solutions, a field that has become critical for the production of AI chips. In other words, as the world invests more in data centers and smart chips, Nova's measurement devices are in higher demand.
The forecast for the third quarter added fuel to the enthusiasm. Management expects revenue of 277 to 287 million dollars, with the lower end of the forecast already matching the market consensus (277.06 million dollars) and the midpoint being higher. The adjusted profit forecast of 2.70 to 2.85 dollars per share is also positioned above the expectation of 2.71 dollars.
Alongside the celebration, one figure deserves attention. Gross profit margins fell to 56.5%, compared to 57.7% in the previous quarter and 57.8% in the same quarter last year. This is not a dramatic fall, but it serves as a reminder that rapid growth, alongside an increase in operating expenses (68 million dollars compared to 61.6 million last year), takes a certain toll on profitability.
Nova's stock has already risen 22.5% since the beginning of the year and jumped 52.7% in the last year, performances that boost the portfolios of millions of savers through index-tracking funds in Tel Aviv and global equity funds. The Israeli chip sector (Nova, Camtek, Tower) has become one of the significant engines of local pension savings. As long as the AI industry continues to pour money into chip production, Nova is in a comfortable position, and this is felt in the long term even by those who have never bought the stock directly.
"This quarter marks a significant milestone for Nova, as we crossed the 250 million dollar threshold in quarterly revenue and the 2.50 dollar threshold in adjusted earnings per share, in line with the pace of activity we outlined in our long-term strategic plan," said Gaby Waisman, President and CEO of the company.
"We recorded record sales in several of our product lines, including the chemical metrology solution for Front-End and Sentronics dimensional metrology solutions for advanced packaging. The results were supported by broad demand from customers, continued market share gains, and deepening relationships with customers in the most advanced component segments. As a result, we are entering the coming quarters with improved visibility, a solid pipeline of opportunities, and confidence in our ability to deliver another year of profitable growth."
