"Market Concerns Are More Relevant to Nvidia, Less to Nova and Camtek"

Nova and Camtek released their Q4 2024 and full-year earnings last week, both delivering strong results and solid forecasts. However, the market reaction was mixed—Nova soared, while Camtek saw some profit-taking. According to Vastchenok, this divergence was partly due to Nova's announcement of its entry into a new semiconductor manufacturing segment, Gate-All-Around, which is expected to generate $500 million in revenue over the next two years. Additionally, he believes that Camtek suffers from lower visibility among Wall Street investors, leading to increased uncertainty.

He also explains why Oppenheimer views the DeepSeek AI turbulence as a net positive for Israeli semiconductor stocks, how both companies are positioned in China, and how Nova's expansion into new segments is bringing it into direct competition with Camtek. Oppenheimer raised its price target for Nova to $300, implying a 12% upside, and set a $120 target for Camtek, reflecting a 40% upside.

What impressed you about Nova’s earnings?

"The numbers were fantastic—far above expectations—and this isn't the first time," says Vastchenok. "Applied Materials, for example, reported weak results on Thursday evening, highlighting the struggles in the broader industry, which makes Nova's performance even more impressive. While the market grew about 5%, Nova surged 45%, and most of that was organic. This strength comes from its leadership in advanced metrology technologies, where it has little to no competition, particularly in materials metrology. Even in China, where it sells less advanced products, it continues to benefit from strong demand."

• After the DeepSeek Shockwave: ‘An Opportunity in Israeli Chip Stocks’

Why did Camtek drop after earnings while Nova soared?

"I think investors are more cautious about Camtek because it operates in a different segment. Nova sells to fabs, while Camtek sells to backend assembly and packaging plants, particularly in advanced packaging. This field was relatively niche in the past, but it has grown faster than chip manufacturing due to increasing complexity. Nvidia’s chips, for example, combine multiple dies—logic, memory, and more—which require sophisticated packaging and inspection solutions, and that's exactly what Camtek provides.

A few days before Camtek’s earnings, Onto Innovation, one of its competitors, released results and talked about temporary weakness in the memory sector. Even though this is short-term, investors reacted negatively.

Additionally, Nova benefited from its discussion around a massive investment wave in Gate-All-Around technology, the next-generation semiconductor manufacturing process set to replace the current one that has been dominant for over a decade. TSMC, for instance, announced a 30% increase in capital expenditures this year, reaching record levels, primarily for this technology. Nova explicitly stated that it expects $500 million in revenue from this segment over the next two years, which would account for about 30% of its total revenue during that period."

עוד תכניות

Will this new Nova segment become its primary business in the coming years?

"Yes, and it’s a major development. This is just the beginning. The existing semiconductor manufacturing technology dates back to 2011, and now it’s being replaced. Every measurement parameter is completely different, and additional metrology steps are required. This will become the bulk of Nova’s business in a few years. It’s also a higher-margin segment. There may be an initial profitability hit as the transition unfolds, but ultimately, margins should expand.

Camtek, by the way, also launched new systems, particularly in advanced packaging, which is seeing more sophisticated and profitable processes. The more complex semiconductor manufacturing gets, the greater the need for inspection and metrology."

Is there a bigger opportunity in Camtek than in Nova?

"I've seen many price target upgrades for Nova. Camtek is projected to grow revenue by 12%, but I believe it can significantly exceed that. It's simply less well-covered. It's a relatively conservative company that isn't as well-known on Wall Street. Some may see it as a niche player, but both Camtek and Nova derive about 30% of their revenue from China, for example."

You recently said DeepSeek is actually a positive sign for the semiconductor industry and Israeli stocks in particular—why?

"DeepSeek is a wake-up call for Western companies. All major cloud providers have stated they plan to significantly increase spending on cloud infrastructure this year—over $300 billion combined. Naturally, a large portion of that will be directed toward semiconductor purchases and inspection equipment, benefiting companies like Nova and Camtek.

Additionally, we know China is aggressively developing AI capabilities and must do more with less due to U.S. sanctions. This means they’re building larger data centers with lower-end chips but at significantly higher volumes, requiring a massive increase in semiconductor investments within the bounds of what’s permitted.

If you compare Nova and Camtek to their American counterparts, they have a higher share of sales to China. That’s not coincidental. Chinese companies prefer working with non-American suppliers, giving Israeli firms a competitive edge."

Could Nova and Camtek’s China business be affected by U.S. sanctions?

"Neither company violates sanctions. Chinese firms prefer to buy from non-U.S. suppliers regardless of sanctions, so I don’t see significant risk to them in that regard."

Could their China exposure become a risk factor?

"Yes, but it’s primarily an opportunity. Last year, 50% of all semiconductor industry capital expenditures came from China. This year, estimates suggest that percentage will be lower, but I find that hard to believe. They’re spending more on lower-end chips but in massive quantities.

When working with advanced technologies, the need for inspection and metrology also increases. China is a bigger opportunity for Nova than for Camtek, as Camtek focuses more on advanced chips that aren’t sold in China, whereas Nova produces legacy metrology tools that are widely used there."

What are the biggest risks for Nova and Camtek right now?

"The main risks are a decline in Chinese semiconductor investments and increased competition. That said, Nova and Camtek are in a strong position. Their primary competitor, KLA, is a massive company that moves slowly, and both have been steadily taking market share from it.

This is a cyclical industry, but it's been growing at high rates for the past two years. Nova and Camtek have already carved out significant market share, but KLA could decide to get more aggressive again. Their growth has been exceptional—this sector doesn’t typically expand at these rates. They’re positioned in the areas receiving the most investment.

The big question everyone is asking is: when will this wave end? But in reality, that question is more relevant to Nvidia than to Camtek and Nova."

Could Nova expand into additional segments?

"Nova is making a strong push into advanced packaging—the dominant area for Camtek. That segment already accounts for 15% of Nova’s revenue and is growing rapidly. Both Nova and Camtek recently acquired competing German companies in this space.

Nova also has very strong relationships with chip manufacturers, including TSMC’s top management, so it’s reasonable to expect that Nova could compete with Camtek in even more areas in the future."