The evolution of the AI semiconductor industry is driving a higher need for metrology tools and equipment, such as those supplied by Nova. This is because the increasing size and complexity of AI accelerator architectures, along with the accelerated release cycle moving to annual upgrades, puts much greater emphasis on metrology and process control to ensure manufacturing yields remain high. For a deeper understanding of the drivers of metrology demand, refer to our prior analyses, Nova and Onto Innovation: Growth in Metrology and Semiconductor Process Control, or Nova Limited: Riding the AI/HPC Wave with Advanced Nodes and Packaging. Nova and Onto Innovation: Growth in Metrology and Semiconductor Process Control, or Nova Limited: Riding the AI/HPC Wave with Advanced Nodes and Packaging.
In particular, Nova is expecting to benefit from the shift to gate-all-around with TSMC’s 2nm node with outlets for growth in advanced packaging, such as for HBM, and in memory, with Q3 in particular showing a sharp acceleration in memory revenue to record levels as the industry battles a severe supply shortage.
Looking ahead to 2026, revenue growth is expected to be quite soft in the first half before accelerating in the second half, driven by GAA with memory tailwinds, though for the time being, we will likely hold off on Nova but keep it on our watchlist for a potential inflection earlier than expected.
Memory Revenue Accelerates to Nearly 21% QoQ in Q3
Nova does have AI-related outlets to growth across its product revenue lineup, as TSMC’s 2nm node is its first to adopt GAA, which is expected to support AMD’s EPYC CPUs in 2026, as well as Google’s TPU v8 and Amazon’s Trainium4 accelerators in late 2027.
However, the current memory environment may provide a stronger growth outlet considering supply shortages are worsening, with Intel CEO Lip-Bu Tan recently commenting that there may not be relief until 2028. Nova sees a higher exposure to DRAM and HBM, and will likely benefit from Micron boosting its 2026 capex from $18 billion to $20 billion, primarily to support HBM supply in 2026.
Nova saw a sharp QoQ acceleration in its memory business in Q3, reaching about 30% of product revenue, up from 25% in both Q1 and Q2. This would roughly project memory revenue to be up ~20.7% QoQ to approximately $53.7 million, a record high with DRAM accounting for the majority of sales, and accelerating from 2.3% QoQ growth in Q2.
Nova said that Q3’s record revenue was driven by advanced DRAM and HBM, and on the product side, record Veraflex sales to memory fabs and new PRISM platform orders supporting HBM manufacturing. Nova said its next-gen modular Nova WMC system has been adopted by three customers for HBM and power device manufacturers, with other customer evaluations underway.
Nova also said it anticipates “receiving orders for multiple tools from a new memory customer following the successful adoption of the Nova AncoScene front-end platform, which replaces a competing tool,” which could continue to drive further acceleration in memory over the next quarter(s).
Memory to take More Revenue Share in 2026
Despite not guiding for 2026, Nova hinted that memory will continue to take revenue share moving through 2026 on its higher exposure to DRAM. This could see memory reach as high as 40% product revenue share, up from the high-20% range currently.
CEO Gaby Waisman explained that Nova sees “DRAM is recovering nicely, and we have a good exposure in this market. We do expect this trend to continue next year and that memory will be one of the growth drivers for WFE in 2026. Saying that, our long-term model suggests a ratio of 40% memory and 60% logic due to the higher metrology intensity in logic. … we do see the fundamentals of the growth in the memory, and we do expect a continued growth next year in that sector.”
Assuming product revenue remains ~80% revenue share in 2026, this would project revenue out to ~$786.4 million for the full year. At a 40% share, memory revenue would project to nearly $315 million, whereas 2025 could land close to $195 to $200 million on similar mix in Q4 as in Q3. This would roughly point to growth in the high-50s YoY.
2026 Growth to be Weighted in 2H
However, the main challenge for Nova heading into 2026 is that Q1 growth is expected to be very soft, before accelerating in the back half of the year into 2027. Management has been open about the year being back-half weighted, so any hint of extended softness could be a key risk to watch, considering growth is not much above the broader WFE outlook.
Looking forward, management explained that they expect WFE growth to be mid-single digits in 2026 with the potentiality that AI drives upside to this, as demand “trickles down the value chain to increase utilization rates and wafer starts.” As it stands, Nova’s 2026 revenue growth is estimated to increase just 11.9% YoY, only a handful of points above its WFE outlook, so any changes in capex plans by key customers could easily affect growth to the upside or the downside.
Analysts noted that this WFE outlook is the same that Nova provided in Q2, and questioned if the company will still grow faster than WFE, or if memory chipmaker fab capacity constraints would limit WFE upside. CEO Gaby Waisman said that there has been “some improvement since the September discussions. But in general, I think that for the Nova side, we do believe that we have the right growth engines and ability to outperform this growth. And we estimate that 2026 will continue the trend and that in general, we believe it will be more of a second half weighted year.”
CFO Guy Kizner provided more details later, saying that “And in terms of the specifics, I believe that the advanced nodes, in particular, gate-all-around will accelerate further in the second half of next year, driving that weighted assumption. But of course, we are not giving any color beyond that other than saying that we believe that we have both memory and advanced logic driving the business in next year in general and accelerating towards the second half in particular.”
It's important to note that since Nova provided this commentary, TSMC has substantially boosted its 2026 capex outlook, guiding for $52 to $56 billion in capex for the year. This points to 32% YoY growth at the midpoint, with 70–80% to be allocated to advanced processes, signaling the chipmaker’s confidence in sustained, long-term demand driven by AI.
As it stands, GAA likely will be the number one growth outlet through 2026, as Nova has previously committed to $500 million of cumulative GAA revenue from 2024 to 2026. As we outlined in our prior analysis, Nova Limited: Riding the AI/HPC Wave with Advanced Nodes and Packaging, a three-year time frame would imply a 2X and then 4X ramp in GAA revenue in 2025 and 2026, respectively, to ~$90 million in 2025 and ~$365 million in 2026.
On the memory side, it’s likely that growth will remain concentrated in DRAM and HBM, as management explained that NAND is a “bit muted still” with the hope that it would begin growing “probably towards the second half of next year.” Additionally, despite the severe supply constraints across the industry, fab construction is not an overnight phenomenon, meaning that any new plans put in place through 2026 may not begin to appear in Nova’s memory revenue until 2027.
High China Exposure
A key risk to consider is Nova’s high China exposure, as the country contributes >30% of revenue, and any renewal in geopolitical tensions could impact revenue or margins. Management explained that its revenue to China would be nominally higher YoY in 2025, though its revenue share would decrease from ~39% to >30%, as growth in other regions would outpace China.
Management added that China revenue “has already normalized in terms of the business levels in the second half of this year, and we expect this trend to continue in the first half of 2026.” Analysts questioned if this normalization continuing into 1H would mean China could be down YoY for 2026, though CEO Gaby Waisman said it does not allude to any changes, as Nova still has lower visibility for 2H with China remaining “very dynamic.”
Financials
Revenue Growth Decelerating, Expected to Reaccelerate in 2H
Nova reported its sixth-consecutive quarter with record revenue in Q3, up 25.5% YoY and 2.1% QoQ to $224.6 million, although this decelerated from 40.3% YoY and 3.1% QoQ growth in Q2. Nova said Q3 saw record revenue in memory and advanced logic products, with the latter driven by strong demand from gate-all-around (GAA) manufacturers and sales of its METRION platform for GAA and advanced DRAM manufacturing.
For a breakdown of revenue, product revenue was $178.9 million, up 24.5% YoY and 0.6% QoQ to $178.9 million, a sharp deceleration from 42.7% YoY growth in Q2. Approximately 70% of product revenue stemmed from logic and foundry and the other 30% from memory. Services revenue was $45.7 million, up 29.4% YoY and 8.5% QoQ.
For Q4, Nova guided for revenue to be between $215 to $225 million, pointing to YoY growth decelerating further to 13% YoY while QoQ growth would move negative, at a (2.2%) QoQ decline. Nova did not provide details on key growth drivers for Q4, but did note in November that it expected orders from additional customers for its METRION platform in the coming months.
Based on Q4’s guidance, management expects 2025 to be a record year for the company with revenue up ~30% YoY, or to roughly $888 million. Looking ahead to 2026, Nova projects further growth on advanced packaging, advanced logic and DRAM fueling momentum. As noted above, growth is expected to be weighted towards the second half of the year, specifically on GAA acceleration.
Current consensus estimates point to YoY growth of just 11.9% YoY to $983 million, with quarterly revenue growth in the ~5% region for Q1 and Q2 before sharply accelerating to exit the year at an estimated 25.5% in Q4, aligning with these aforementioned comments for a back-half weighted year.
Margins Feeling a Slight Pinch Sequentially
Margins were mostly flat on a YoY basis, yet Nova felt a pinch on margins sequentially as operating expenses increased slightly faster QoQ than revenue.
GAAP gross margin in Q3 was 57%, in line with Q3 2024 but down 1 point from Q2, while adjusted gross margin was 59%, up 1 point YoY but down 1 point QoQ. For Q4, Nova guided for GAAP gross margin to remain flat QoQ at 57%, with adjusted gross margin guided at 58% +/- 1%, down slightly QoQ.
Considering the perceived softness, Citi’s Atif Malik questioned about margins and if there were any China impacts. Management said there were no impacts from China, that guidance remained well aligned with its target model for 57-60% and reflected pricing and cost discipline, and the main fluctuating factor would be product mix.
GAAP operating margin was 28% and adjusted operating margin was 32%, both flat YoY but down 2 points QoQ. This was primarily due to the ~3.2% QoQ increase in opex, outpacing QoQ revenue growth by just over 1 point, highlighting how easily a small shift in the cost structure can impact margins. For Q4, Nova guided for GAAP operating margin of ~27.5% at midpoint and adjusted operating margin at just over 31%, both down slightly sequentially, again on opex slightly outpacing revenue on a QoQ basis.
GAAP net margin was 27%, down 2 points YoY and 4 points QoQ. Adjusted net margin was 31%, flat YoY but down 1 point QoQ.
For the full year, Nova is guiding for adjusted gross margin of ~59% and adjusted operating margin of ~33%, at the high end of its target model, though this is weighed down by the softer margins in Q3 and Q4. Nova has not provided guidance for 2026 yet.
EPS
Due to the sequential margin contraction, EPS declined sequentially. Q3 GAAP EPS was $1.90, up 18.8% YoY but down (11.2%) QoQ and missing the consensus estimate for $1.94. Adjusted EPS of $2.16 barely beat consensus for $2.15, and was up 24.1% YoY but down (1.8%) QoQ.
EPS growth is expected to remain muted through Q4, with GAAP EPS guided to be $1.77 to $1.95, up 17.7% YoY at midpoint, while adjusted EPS was guided to be $2.02 to $2.20, up 8.8% YoY at midpoint, a more than 15 point deceleration.
For 2025, adjusted EPS is expected to rise nearly 30% YoY to $8.68, before decelerating to almost match revenue growth at 12.1% YoY to $9.73 in 2026.
Cash Flows Strong
Unlike margins, Nova’s cash flow margins strengthened, though the company sold $750 million in convertible notes in the quarter, boosting its debt.
Operating cash flow was $71.3 million in Q3 for a 31.7% margin, up 5.5 points YoY and 10.9 points QoQ, while FCF was $66.9 million for a 29.8% margin, up 5.7 points YoY and 10.3 points QoQ.
Cash, equivalents and marketable securities totaled $1.6 billion, while debt was $821.5 million, including the $750 million convertible note raised in Q3.
Valuation
Nova is currently trading just off peak multiples on its recent pullback, with shares trading at 12.5x forward PS, well above its average 7.8x multiple.
On the bottom line, shares trade at an extended 42.7x, pulling back from its peak at 51.1x but remaining well above its 27.7x average and above most of its WFE peers.
Conclusion
Nova witnessed a sharp acceleration in memory growth in Q3 to 20.7% QoQ, capitalizing on advanced DRAM and HBM demand with GAA set to accelerate more significantly in the second half of 2026. Despite the strength in memory, it remains a smaller portion of revenue, at ~30% of product revenue or roughly 24% of overall revenue, not enough to significantly move the growth needle.
As it stands, Nova is expected to see a rather soft Q1 and Q2 with YoY growth expected to be in the 5% range before meaningfully accelerating towards 25% by Q4, so we will keep an eye on the company for this inflection but remain on the sidelines for now.
Damien Robbins, Equity Analyst at I/O Fund contributed to this analysis.
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Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
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