Key Takeaways:
- Nova's metrology solutions are poised for long-term growth as AI/HPC drives the demand for advanced nodes and advanced packaging solutions.
- Gate all around (GAA) presents a catalyst for NVMI as Taiwan Semiconductor moves toward a new advanced packaging architecture.
- Over 100 new fabrication facilities will be built globally by 2030, according to Jeffries, buoyed by NVIDIA and AMD shifting to annual GPU releases.
- Nova experienced a revenue and earnings growth spurt starting in Q3 2023, potentially hitting a peak in its Q1 2025 guide, as analyst estimates indicate a flattish plateauing year with rangebound revenue and EPS.
- Nova collected 39% of its total revenue from China in 2024, but that will shrink due to the growth in its advanced nodes business, which China lags due to U.S. trade restrictions.
- Nova’s headquarters are based in Rehovot, Israel, located 20 km from Tel Aviv, making it susceptible to geopolitical risks including the ongoing Israel-Hamas war and tensions with Hezbollah in Lebanon.
Nova Limited (NASDAQ: NVMI) is a leading provider of metrology tools for advanced process control in the semiconductor manufacturing industry. The company primarily focuses on dimensional and materials metrology and inspection solutions. Its tools are a necessity for chip manufacturers, and their business correlates to the supply and demand trends of the semiconductor industry.
The AI revolution is providing an extended runway as the need for metrology grows with the evolution of more advanced chips that are required for artificial intelligence (AI) and high-performance compute (HPC) applications. Nova’s metrology solutions are applied to advanced logic (AI-enabled), memory and advanced packaging.
Advanced Nodes Will Drive Growth
As AI drives the need for more powerful and efficient chips, manufacturers are scaling up their designs by making them more complex in terms of size, materials, and packaging. This complexity means that chips are becoming harder to produce, and even small deviations during manufacturing can affect the yield. Therefore, precise process control becomes critical, which in turn increases demand for metrology equipment.
I/O Fund pointed out that the evolution to advanced nodes is what will drive the AI boom and demand for metrology in our article, “Nova and Onto Innovation: Growth in Metrology and Semiconductor Process Control.”
“Advanced nodes require more process steps as node sizes shrink, so for a chipmaker or foundry like TSMC or Intel to move from primarily producing on 5nm nodes to 2nm or below over the next couple of years, there will be a greater need for metrology equipment. Currently, the 5nm and 4nm nodes are primarily being used for AI chip production, such as that for Nvidia’s Hopper and Blackwell chips, while 3nm production is ramping at TSMC, with volume production at the 2nm node expected in 2025, primarily for smartphone applications. This is because the manufacturing tolerances shrink as nodes shrink in size – the chipmaking process now becomes increasingly more sensitive to minute deviations in the process. Moving to more advanced nodes warrants much greater precision throughout the entire manufacturing process, as the smallest of deviations could greatly affect the process yield.“
Moreover, the frequency of accelerated chip development timelines is an added boon for the urgency and demand for Nova’s metrology tools — “Nvidia and AMD are both shifting to annual release cadences, aiming to bring next-generation GPUs to market once per year, compared to prior cadences of every two years. This is a major technological feat – as we had said previously for Nvidia, it’s a ‘move-fast-break-things’ problem, where Nvidia is pushing the boundaries of what had previously been seen as impossible in the chip industry. By moving to these quicker release cycles, there’s a much greater emphasis on metrology and process control to ensure that the manufacturing process remains sharp while also ensuring a faster ramp and high yields to meet mass production thresholds and demand.”
The increasing complexity of chips is driving higher metrology intensity. Gate all-around (GAA) field-effect transistors (FETs) require 30% more metrology steps. High bandwidth memory 3 extended (HBM3E) used for AI, ML, graphics processing, and scientific computing consumes 3X more wafer supply as double data rate 5 (DDR5) SDRAM used for mainstream computing applications on desktops and laptops. There are over 100 fab projects planned globally, supported by over $300 billion in funding and incentives by 2030. The U.S. alone has 28 fabs costing around $52 billion.
Advanced Packaging Revenues Doubled in 2024, Driven By AI/HPC Demand
AI and HPC workloads drive the need for advanced nodes, which deliver higher performance and energy efficiency. However, as chips become denser and generate more heat, advanced packaging techniques become essential to manage thermal challenges and improve overall chip performance. Nova’s 2024 advanced packaging revenues more than doubled YoY. It now contributes 15% of product revenue, and its integrated metrology solutions have been adopted by four of the top five advanced packaging manufacturers.
CEO Gabriel Waisman addressed the areas that boosted their advanced packaging segment in 2024 during the Q4 conference call. He stated this.
“So first, the advanced packaging had contribution from both our chemical metrology division as well as the dimensional metrology division. We have our integrated metrology in all of the top five advanced packaging manufacturers, and we have a significant adoption of our PRISM standalone OCD platform. So it's both divisions that contributed to this growth. And we do expect this year to expect to continue and grow by double-digit growth.”
Gate All Around (GAA) Presents Catalyst for Nova
In June, we covered how TSM is moving from FINFET transistors to gate all around (GAA), stating “with FinFET, the gate is wrapped on three sides, whereas with gate-all-around (GAA), as the name implies, the gate is wrapped around on all sides. FinFET is used in 14nm, 10nm and 7nm nodes. TSMC uses FinFETs in the 5nm, yet will phase out FinFET after the 3nm. As TSMC moves toward GAA for the 2nm, having the gate wrap “all-around” will create a greater surface area for better electrostatic control and to also reduce leakage.”
The write-up also pointed out: “The 2nm will be the first node to use gate-all-around field-effect transistors (GAAFETs), which will increase chip density. The GAA nanosheet transistors have channels surrounded by gates on all sides to reduce leakage, yet will also uniquely widen the channels to provide a performance boost. There will be another option to narrow the channels to optimize power cost. The goal is to increase the performance-per-watt to enable higher levels of output and efficiency. The N2 node is expected to be faster while requiring less power with an increase of performance by 10%-15% and lower power consumption of 25%-30%.
For TSMC, the 2nm will feature NanoFlex technology, which is similar to FinFlex to where designers can use cells from different libraries. However, due to the new gate-all-around (GAA) nanosheet transistors, there are additional benefits, such as customizing the width and height of cells.
Intel’s 20A will be the first to feature backside power delivery for faster switching and to alleviate routing congestion. With this release, Intel is introducing the “angstrom” era” which translates to future process generations where the process nodes are not smaller necessarily, rather the transistors they’re built with will be improved upon. For Intel, instead of the GAAFET, the company is introducing RibbonFET transistors where multiple flat nanosheets are stacked to enable better current flow.”
CEO Waisman committed to $500 million of GAA revenue from 2024 to 2026. If our math is correct, this can be achieved in one of two scenarios:
- A two-year time frame which includes 2024 GAA revenue of $45 million and 2025 GAA revenue would have to be $455 million to arrive at the $500 million commitment from 2024 to 2026, implying a 10X surge in 2025 GAA revenue.
- A three-year time frame which includes 2024 GAA revenue of $45 million, 2025 GAA revenue of $90 million and 2026 GAA revenue of $365 million to arrive at the $500 million commitment from 2024 through 2026, which would imply a 2X and then 4X ramp in GAA revenue in 2025 and 2026, respectively.
In the latter three-year scenario, GAA revenue would represent 8.3% in 2024, 13.4% in 2025 and 50.8% in 2026 of total product revenue based on consensus analyst estimates, as GAA adoption surges in 2026. Either scenario underscores the point that GAA is shaping up to be a major catalyst for Nova.
What is Semiconductor Metrology?
Semiconductor metrology uses precise measurement techniques to inspect wafers for defects and contamination, ensuring process control during manufacturing. Its main goal is to identify and locate issues so engineers can address them, thereby maximizing chip yield, which is the percentage of functioning chips produced from a wafer.
Higher Chip Yields are the Holy Grail of Efficient Semiconduction Manufacturing
Higher yields are essential for reducing costs by producing more functional chips from the same raw materials, which is a critical edge and key driver for Nova. Their metrology tools, including chemical and optical instruments help major customers like Taiwan Semi overcome yield challenges at advanced nodes. Advanced semiconductor packaging technology like chip-on-wafer-substrate (CoWoS), which was crucial to scaling NVIDA’s Hopper and Blackwell production, add further complexity. Taiwan Semi’s 3nm node only hit yields of 50% to 60% in 2023, but has reportedly achieved 3nm yield of over 90% and 2nm yield of 60%. Nova's role in optimizing CoWoS yields becomes a linchpin for success—more chips, lower costs, and higher margins.
As chip features shrink, tighter tolerances increase defect risks, making advanced metrology essential for quality and cost efficiency. While traditional applications face seasonal slumps, secular growth in AI is turbocharging demand for Nova’s metrology solutions across all semiconductor segments.
Nova offers many types of metrology solutions:
- Dimensional Metrology measures the physical dimensions of semiconductor structures to ensure the accuracy of features on chips. Nova Fit Series utilizes optical techniques to measure critical dimensions (CD), including weight, height and side wall angle in 3D structures.
- Materials Metrology provides insight into the material properties impacting device functionality. Technologies included X-ray photoelectron spectrometry (XPS), X-ray fluorescence (XRF), and secondary ion mass spectrometry (SIMS). Products include VeraFlex, Elipson and Metrion.
- Chemical Metrology focuses on the chemical composition and purity of materials focusing on the presence, concentration, and distribution of chemical species, including dopants, impurities, and contaminants. Its technologies often overlap with materials technology through techniques like secondary ion mass spectrometry (SIMS) with platforms like Metrion. The Metrion platform offers SIMS capabilities for in-depth chemical analysis, which is vital for understanding dopant distribution and detecting impurities.
- Spectral Interferometry uses light interference to measure depth, thickness and properties of thin films and complex 3D structures, especially for probing vertically stacked layers. Nova Prism uses this for optical CD metrology.
- Optical Scatterometry analyzes how light scatters off the patterned structures to infer dimensions and shapes to measure critical dimensions of periodic structures and wafers. Nove MMSR+ uses this for high-precision measurement of CD and thin films.
- Advanced Imaging involves capturing high-resolution images to analyze defects, patterns and material properties in combination with other metrology techniques for comprehensive analysis. Nova T600 integrated advanced imaging for better pattern recognition and precision alignment.
- Hybrid Methodology combines different metrology techniques from various toolsets, including optical CD, atomic force microscopy (AFM), and scanning electron microscopy (SEM) to enhance accuracy. It’s used to measure parameters that are too difficult with just a single method. Nova's Hybrid Metrology Solutions uses a hybrid approach (IE, integrating spectral interferometry with scatterometry) to enhance measurement accuracy for parameters that single methods can't capture.
Taiwan Semiconductor Faces Yield Issues; Advanced Packaging Alleviates the Problem
Taiwan Semi’s CoWoS advanced packaging technology can improve chip yields, but it’s more of a double-edged sword. It boosts yields but introduces new yield challenges during the actual packaging process. CoWoS involves stacking multiple dies like (IE: GPU + HBM memory) on a silicon interposer and mounting that on a substrate. This is key for high-performance chips like NVIDIA’s Hopper and Blackwell GPUs.
CoWoS lets Taiwan Semi use smaller and higher-yielding dies instead of a single giant chip, two dies vs one monolithic chip. If one die fails, it can be swapped out (before stacking), rather than having to replace the whole chip. The challenge is that stacking dies on interposers is more complicated (IE: multi-die stacks heating unevenly causing warping, which can cut yields up to 10%). This is where Nova’s metrology tools, like PRISM II and ELIPSON, step in to enhance CoWoS yields, pushing them above 90% on mature production runs.
We’ve also broken down the importance of CoWoS-L capacity in clearing Blackwell bottlenecks here.
China Generates the Most Revenue, But That Will Be Shrinking with Advanced Nodes
In 2023, China generated 30% of total revenue. In full year 2024, that percentage climbed to 39%. However, growth will come from advanced nodes, so the China share is expected to decline. Nova CEO Gaby Waisman confirms this point.
“Sure. So, in 2024, the China share of our overall sales was 39%. Our strength there is in line with industry peers. And due to the fact that growth this year will come from advanced nodes, we see the share of China declining.”
Since China’s access to advanced nodes is limited due to trade restrictions, they lag behind leading-edge manufacturers like Taiwan Semi and Samsung. This is a positive as it enables more geographic and technological diversification. Advanced nodes are the future and generate strong margins. It reduces Nova’s dependence on any single market or technology, which captures opportunities in higher-growth and higher-value segments.
China's lag in advanced semiconductor nodes is largely due to U.S. trade restrictions that prevent ASML, the sole manufacturer of EUV lithography machines needed for chips at 7nm and below, from selling to China. These restrictions, influenced by U.S. policy, have left China using less advanced deep ultraviolet (DUV) systems, resulting in a technological gap where their most advanced chips are still at the 7nm node, about five years behind the global frontier. Incidentally, TSMC has also halted producing 7nm AI chips for Chinese customers, including Baidu, Alibaba and ByteDance, as of Nov 11, 2024. Any future AI chip production will need U.S. approval.
Financials: Growth Spurt Driven by AI/HPC Demand. Are Analysts Asleep at the Wheel?
Nova had a record 2024 driven by the AI boom. However, indications appear that a flattish 2025 is on the horizon. Nova experienced a growth spurt that started in Q3 2024, peaking out by Q1 2025, as it flattens out in 2025, according to analyst estimates. Nova only provided Q1 2025 guidance. They don't provide full-year guidance. The bump up in Q1 2025 is helped by the accretive nature of the Sentronics acquisition, which generates an estimated $20 million annually. Nova will start to add Sentronics revenue into the Company’s earnings starting in Q1. Nova reported a record Q4 and 2024 revenue powered by record sales of material metrology and dimensional metrology solutions. While analysts still forecast 25.26% YoY revenue and 23.09% YoY EPS growth rate in 2025, QoQ growth indicates a plateau.
Revenues Surge to All-Time Highs, But 2025 Analyst Estimates Indicate a Flattish Year
Q4 revenue grew 45.11% YoY and 9% QoQ to a record $194.77 million, beating consensus analyst estimates by $8.28 million or 4.44%. The revenue beat was attributed to record strength in its materials metrology portfolio driven by robust sales of the VeraFlex, Elipson and Metrion platforms augmented by record sales of their dimensional standalone OCD solutions that saw heightened demand from GAA and advanced packaging solutions.
Management guided Q1 2025 revenue of $205 million to $215 million, with a midpoint of $210 million, representing 48.09% YoY growth. Full year 2024 revenue rose 30% YoY to 672.4 million. Q1 2025 will include Sentronics revenues, which are estimated to be around $20 million annually or an additional $5 million per quarter. The geographic revenue split in 2024 was: China generated 39%, Taiwan had 20%, Korea had 18%, the U.S. had 14% and other territories contributed the remaining 9%.
Nova’s revenue will have grown for nine consecutive quarters, potentially peaking out in Q2 2025 at $213.8 million, according to consensus estimates. Analyst estimates for FY 2025 indicate flat revenues through Q1 2026 hovering between the $210 to $213.80 million level per quarter, despite 2025 YoY growth estimated to fall to 25.28%, which echoes the sentiment for many other component suppliers like Monolithic Power acknowledging a slow start and potential flattish 2025 as it pertains to AI and data center growth. Other suppliers like Vertiv have issued contradictory guidance indicating a slowdown as the year progresses (perhaps due to a softer Q2).
Revenues Split Between Product and Service Sales
Nova generates dual revenue streams through two segments: Products and Services. The Products segment includes sales of all the platforms, tools and systems. Service revenues include installation, training, maintenance, customization, support and upgrade services.
Products revenue rose 52.3% in Q4 to a record $158.55 million due to the adoption of Nova’s metrology solutions for logic for AI applications, advanced packaging and memory technologies like HBM. Product revenue distribution of 72% from logic and foundry and 28% from memory. Product revenues included three customers and four territories, which contributed each 10% or more. The principal customers come from Taiwan (Taiwan Semi), South Korea (Samsung), China (Semiconductor Manufacturing International Corporation) and the United States (Intel). Growth went from being down (15.7%) in Q4 2023 to consistent quarterly improvements to close the year with record revenues.
Services revenues rose 20.3% YoY to $36.2 million in Q4 driven by the increasing utilization of tools and expansion of Nova’s customer base on ongoing service contracts. Nova has over 6,400 active installed bases at over 400 customer sites. The Service division delivered record results, with 2024 revenues up 19% YoY due to increased capacity demand and yield improvements. The market remains robust, driven by mobile and AI demand and investments in advanced logic, DRAM, and packaging, with wafer front-end (WFE) expected to grow at mid-single digits this year. Management expects 10% to 15% growth in 2025.
Non-GAAP EPS: Solid YoY EPS Growth Peaks by Q1 2025 and Decelerates in 2025
Nova reported Q4 non-GAAP EPS of $1.94, beating consensus estimates of $1.82, by $0.12 or 6.5%. Non-GAAP EPS rose 42.65% YoY. Interest income for the quarter fell 48.4% YoY to $3.76 million, yet GAAP EPS rose 31.67% from $1.20 to $1.58.
Management guided Q1 2025 EPS to $2.00 to $2.16, with a midpoint of $2.08, which would beat analyst estimates by $0.01, indicating 49.6% YoY growth.
Nova experienced a growth spurt that started in Q3 2024, expected to peak by Q1 2025 driven by AI/HPC chip demand as it flattens out in 2025. Non-GAAP EPS peaks at $2.08 in Q1 2025 guide, as analyst estimates call for a sequential drop to $2.03 by Q1 2026, down -1.92% YoY.
Margins: Consistent Gross and Operating Margins
Nova has done a good job holding the line with margins, as they remained mostly flat in 2024. Non-GAAP gross margins for Q4 were 58%, down from 61% in 1H, but still high enough to indicate strong pricing power and operational efficiencies. The target gross margin is greater than 60%. Non-GAAP operating margins in Q4 were 28%, relatively flat throughout 2024.
Improving Cash While Chipping Away at Debt
Nova closed Q4 2024 with $820 million in cash and cash equivalents, up 27.9% YoY, while chipping away at debt close Q4 2024 at $180.6 million, down 8.65% YoY.
Conference Call: Growth Spurt in 2024, Managements Sees It Continuing in 2025
CEO Gary Waisman noted they are encouraged by the broad adoption of Nova’s portfolio across gate-all-around (GAA) and high-bandwidth memory (HBM) processes. Looking forward, Nova is poised to leverage the transition into advanced manufacturing processes and architectures. They expect growing exposure to new market segments and their differentiated portfolio to drive sustained growth into 2025, continuing the momentum from 2024.
Their standalone optical critical dimension (OCD) solutions had a record year, increasing market share as the Nova PRISM platform delivered high double-digit year-over-year growth. This success was driven by the platform's superior productivity and precision, appealing to both front-end and advanced packaging customers. To meet the rising demand for productivity and yield improvements, they launched Nova Velocity, a next-generation dual-chamber platform that offers the highest productivity in the market. Its speed and robustness have already secured a multi-tool purchase from a leading logic manufacturer, highlighting its ability to deliver innovative, high-yield solutions.
The surge in AI-related demand has been a significant driver as it necessitates energy-efficient computing power and accelerates the demand for advanced processing nodes and memory solutions.
Nova’s customers are leading the transition to 3D architectures, which translate into multiple catalysts for the business, including larger and more complex dies that require a growing number of wafers, a higher number of layers and a leap in the number of process steps, at a much smaller tolerance for error.
Leading foundries, logic, and memory manufacturers are increasingly adopting multiple Nova solutions from their optical dimensions, materials, and chemical metrology portfolio. This widespread adoption demonstrates their ability to meet the complex metrology challenges of advanced semiconductor nodes. Their solutions for 2.5D and 3D applications enable customers to achieve the precision and efficiency required for current and next-generation technologies.
Their materials metrology portfolio delivered record quarterly and annual results. The Metrion platform was adopted by a leading global memory customer for advanced DRAM R&D and high-volume DRAM and NAND production thanks to its high sensitivity and precision in full-wafer epitaxial layer measurements. Additional orders from this customer are expected, and two top memory and logic customers are evaluating the platform. Meanwhile, the fourth-generation VeraFlex platform has been widely adopted by several leading foundries and memory customers, and the Nova Elipson platform performed strongly with repeat orders and penetration into two new major customers.
Nova closed the Sentronics Metrology GmbH acquisition deal on Jan 30, 2025. Sentronics develops modular multi-sensor platforms with proprietary sensors and software that expand our solution capabilities. These platforms are critical for advanced packaging, measuring total thickness variation, surface roughness, and wafer bow and warpage.
Nova expects it to be accretive on a non-GAAP net earnings basis within 12 months of closing. Q1 2025 forecast includes the revenues from the relative period Sentronics will report on Nova. Sentronics had about 10% of a $200 million TAM in 2024, which leads to a total revenue of around $20 million annually or $5 million per quarter. This was gathered from CEO Gary Waisman’s comment here:
“So, as I mentioned, the first quarter forecast includes the revenues from the relative period Sentronics will report on the Nova. And you can deduct from the fact that Sentronics had about 10% of a $200 million TAM market last year as to the level of business that we expect in — especially at least in the first quarter.”
When asked about the demand in 2025 for memory versus logic, Waisman responded.
“So, we do expect advanced logic and advanced packaging to lead the pack in 2025 with the growth. We definitely see the HBM segment as part of the advanced packaging growing with the metrology intensity as well. But the bottom line is it's definitely advanced logic and advanced packaging.”
A leading memory manufacturer selected Metrion.
Mark Millar of The Benchmark Company asked where Nova was seeing significant share gains and in which markets. CEO Waisman responded with this:
“So first of all, in terms of the PRISM, standalone OCD, we saw share gains in both advanced manufacturing as well as advanced packaging. We saw an increase in market share on the front-end side of the Chemical Metrology portfolio. We saw obviously high utilization and additional adoption of the XPS tools in Material Metrology. And we also gained some share on the integrated Metrology, especially as we entered into the advanced packaging space, both in the 2.5D architectures and logic as well as in high-bandwidth manufacturing.”
Waisman clarified that memory sales should be looked at by category—specifically DRAM versus NAND—rather than just comparing HBM to NAND. He explained that DRAM sales are significantly stronger than NAND sales, and within DRAM, high bandwidth memory (HBM) makes up the majority of their business. Moreover, HBM is growing at a faster rate compared to overall DRAM.
Charles Shi of Needham asked about the flatline number and 25% YoY growth estimates in 2025, with wafer front-end (WFR) growth in mid-single digits. Shi asked what the reasons are to believe they will continue 2024’s growth in 2025.
Waisman answered, “I think it has to do with two — three major issues. One is the position that we have, especially with the unique value driven by the technologies that we offer. The second one is expanding our position into advanced packaging and seeing higher adoption. And the third one, of course, which drives that as well, is the Sentronics acquisition that gives us an opportunity to expand to additional customers than the ones that we are exposed to-date. I would top it all, of course, by the fact that we have a strong position in advanced logic, and that gives us grounds to believe that we have the fundamentals, the infrastructure in order to drive the growth into 2025.”
CEO Waisman had confirmed committing that gate-all-around (GAA) revenues are expected to grow cumulatively to $500 million from 2024 through 2026. He stated this.
“I'm not sure I can add more to the fact that we are committed to the $500 million from gate-all-around until 2026. We haven't changed our position in that respect. We will try to give more color during the Investor Day on March 17. But I think that the tracking that number gives a lot in terms of our confidence in making it this year as well.”
This implies a solid growth driver as the adoption of GAA is clearly accelerating as it was 8-9% of total 2024 Product revenues equating to $45 million at midpoint. A doubling conservatively implies $90 million-ish in 2025 or 13.4% of Product revenue based on 25% YoY total revenue growth in 2025. Analyst Charles Shi commented on this.
“Based on your latest reporting, it sounds like, it's $40 million-ish. I think most of your peers are guiding gate-all-around revenue doubling, but your guidance seems to suggest that's a little bit more than doubling for you guys”
This leaves 2026 GAA revenues of $365 million (to complete the $500 million cumulative revenue “commitment” from 2024-2026) implying its growth to 50.8% of total Product revenues in year 2026, using the consensus analyst estimates for full year 2026 revenue of $896.75 million.
Valuation:
The flat/plateaued 2025 assumption is based on consensus analyst forecasts, which had dead-on accuracy for Q1 2025 as management’s midpoint revenue guidance of $210 million matched consensus analyst estimates for $210.1 million. The consensus analyst non-GAAP EPS estimates peak at $2.07 in Q1 2025 versus the $2.08 midpoint guide by the Company and progressively decline for the next four quarters to $2.03 in Q1 2026. Estimates reaccelerate in Q2 2026 at $2.18, then $2.25 for Q3 2026 and $2.34 for Q4 2026. While YoY growth analyst estimates forecast 25.26% revenue and 23.09% non-GAAP EPS growth, the growth during the year indicates a plateau with consensus analyst revenue estimates rangebound between $210 million to $213.8 million.
Either the analysts are asleep at the wheel with their growth estimates or are taking a wait and see approach or expect a flattish 2025 and reacceleration in Q2 2026. Metrology systems providers (semiconductor equipment makers) tend to be a leading indicator compared to power and cooling technology providers, although can be off cycle due to the lumpiness of capex spending from foundries.
It could also coincide with what other AI and data center suppliers are hinting at: a slowdown in 2025 and a reacceleration in 2026. Nova shares trade at a P/E of 47.56 compared to its five-year median P/E of 34.88 and a P/S of 13.06 compared its five year P/S of 6.96. Nova has doubled their revenues every five years since 2007. At the current elevated price levels, it may be prudent to wait and see what further guidance the Company provides in its Q1 2025 earnings release during market hours on May 9, 2025, and its Investor Day on May 16, 2025.
Conclusion:
Nova’s solutions are gaining traction, and the growth catalysts are evident. AI chips are power hungry beasts that advanced packaging technology like CoWoS helps to feed by enabling more performance in less space. Higher yields keep costs down, but the bottleneck occurs when packaging yields lag front-end wafer yields choking off supply. Nova’s metrology tools like its Prism 2 optical critical dimension (CD) platform and Elipson chemical profiling improve interposer alignment and film thickness control in CoWoS packaging. This contributes to higher yields potentially hitting up 90% or greater on mature runs at the foundry level. We can surmise their three principal customers and the four top regions coming from Taiwan (Taiwan Semi), South Korea (Samsung), China (Semiconductor Manufacturing International Corporation) and the United States (Intel).
Management was upbeat about the growth momentum continuing into 2025 but only provided Q1 guidance, as they don't provide full-year forecasts. The Q1 guidance indicates revenue growth of 48.09% YoY at the $210 million midpoint. Around $5 million of that is estimated to be from the addition of Sentech revenues. Customer concentration is less of a concern with a company that supplies foundries, as the total number of foundries globally is limited. However, there is an overallotment of clients in Asia, where most of the world’s foundries are located. Nova is highly exposed to Asia, which comprised 77% of total revenue in 2024, led by China at 39% of total revenues. Nova has a handful of large customers. Three customers comprise at least 30% of the Product revenues. Nova has maintained consistent margins, and its debt-to-equity ratio is 0.19. The company has a war chest of $820 million in cash and cash equivalents.
Welcome to the I/O Fund’s new Discovery Tier, where we cover a new stock idea on a weekly or bi-monthly basis. We are excited to bring you more coverage from the I/O Fund team geared toward new idea generation only.
I/O Fund Equity Analyst, Jea Yu, contributed to this analysis
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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