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Bull of the Day: Nova (NVMI)

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Nova ((NVMI - Free Report) ) is a $3 billion provider of technology for semiconductor manufacture that makes integrated hardware and software tools and systems for the necessary "purity & precision" of silicon engineering.

Here's how the company describes their mission...

Nova's advanced multidisciplinary dimensional metrology technologies combine complex opto-mechanical hardware with advanced optics and cutting-edge algorithms to continuously innovate for effective process control throughout the semiconductor fabrication life cycle.

After a growth lull, Nova is back to a Zacks #1 Rank as revenues and profits have turned around since their Q1 report in early May.

NOVA LTD, formerly known as NOVA MEASURING, is based in REHOVOT, Israel.

Quarter Details and Stock Reaction in the AI Boom

Nova delivered Q1 earnings of $1.23 per share, beating the Zacks Consensus Estimate of $1.04 per share by 18%. This compares to earnings of $1.30 per share a year ago. These figures are adjusted for non-recurring items.

A quarter ago, it was expected that this maker of monitoring systems used in chip manufacturing would post earnings of $1.25 per share when it actually produced earnings of $1.28, delivering a surprise of 2.40%.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

Nova, which belongs to the Zacks Electronics - Semiconductors industry, posted revenues of $132.19 million for the quarter ended March 2023, surpassing the Zacks Consensus Estimate by 1.69%. This compares to year-ago revenues of $133.96 million. The company has topped consensus revenue estimates two times over the last four quarters.

Jefferies analyst Vedvati Shrotre initiated coverage of Nova with a Buy rating and $115 price target in April as part of a broader research note on Semi Cap Equipment. The firm favors the company as an "optical metrology pure-play" and a Foundry/Logic beneficiary, forecasting its revenues to grow at a CAGR of 8% over the next 5 years. As a pure front-end play, Nova has the highest margins relative to Onto and Camtek, the analyst told investors in a research note.

Where Does NVMI Fit In the Semi/AI Ecology?

Metrology is the science of measurement and nowhere is precision more needed than in the "nanosphere" of chip manufacture. A nanometer (nm) is one billionth of a meter, and this is the distance of measurement for engineering transistors onto an integrated circuit (IC) board or card.

Chips have been plunging below 10nm for the past few years as Moore's Law gets new life from GPU pioneers like NVIDIA (
(NVDA - Free Report) ). For comparison, the coronavirus is about 50nm.

I explained some of this in my Top Stock Picks video about Nova on Tuesday, where I also suggested that this little engineer of Semi precision and purity may be an acquisition target for larger wafer fabrication equipment (WFE) companies like Applied Materials (
(AMAT - Free Report) ), Lam Research ((LRCX - Free Report) ) or KLA ((KLAC - Free Report) ).

For less than $10 billion, any of these $50-100 billion Semi engineers could "bolt-on" Nova and secure their dominance in precision purity manufacturing.

You Can't Spell Innovation Sans NOVA

Be sure to watch the video I made Tuesday (link here) to see inside the world of precision Semi manufacture.

Until you do, here was a recent press release from NOVA that highlights their expertise...

Rehovot, Israel, December 20, 2022 – Nova (Nasdaq: NVMI) announced today that a leading global logic manufacturer recently selected Nova ELIPSON™ for next-generation integrated circuit (IC) development.

Nova ELIPSON™ was chosen for its ability to perform in-die characterization of stress, strain, and defectivity in next-generation devices, rapidly and with unparalleled sensitivity. The solution utilizes advanced Raman spectroscopy technology to extract materials properties of in-die structures, by fast and non-destructive means. The platform has consistently proven its ability to solve a wide range of materials metrology challenges in various segments and steps.

“This selection by one of the world’s leading semiconductor logic manufacturers demonstrates the growing value of Nova’s innovative materials metrology portfolio,” stated Eitan Oppenhaim, Nova’s president and CEO. “The increasing complexity of device architecture demands solutions that push the envelope and address the unique challenges our customers are facing. In this complex process fabrication environment, Nova’s unique materials portfolio is becoming critical to the successful manufacturing of next-generation devices.”

This is one example of how sales growth is returning for this small player in the $10 trillion market for AI.

Disclosure: I own shares of NVMI, NVDA, and CDNS for the Zacks TAZR Trader portfolio.

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