Shares of NVE Corporation (NVEC Quick QuoteNVEC - Free Report) have declined 1.5% since reporting second-quarter fiscal 2026 results on Oct. 22, 2025, compared with a 0.5% drop in the S&P 500 index. Over the past month, the stock has risen 9.7%, outpacing the S&P 500’s 1.5% rally, reflecting investor optimism about the company’s growth prospects despite near-term revenue softness.

Earnings & Revenue Performance

NVE Corp reported total revenues of $6.35 million for the quarter ended Sept. 30, 2025, a 6% decrease from $6.76 million in the prior-year period. The decline was led by a 68% drop in contract research and development (R&D) revenues, partly offset by a modest 1% increase in product sales. Net income fell 18% to $3.31 million, or 68 cents per diluted share, from the $4.03 million, or 83 cents per share, reported a year earlier.

For the first six months of fiscal 2026, total revenues decreased 8% year over year to $12.45 million, while net income was down 15% to $6.89 million, or $1.42 per diluted share. The contraction in earnings reflected lower contract R&D activity, margin compression and a higher tax rate, partially offset by lower operating expenses.

Operating Trends & Other Key Business Metrics

Gross profit for the quarter declined 14% to $4.97 million from $5.81 million a year earlier, translating to a gross margin of 78%, down from 86% in the prior year due to a less profitable product mix and an increase in distributor sales, which typically carry lower margins.

Operating expenses fell 7% due to a 23% decrease in selling, general and administrative (SG&A) costs, partially offset by a 3% rise in R&D spending tied to product development. Despite reduced revenues, the operating margin remained robust at 58% and the net margin stood at 52%, underscoring strong cost control and pricing discipline.

Interest income increased to $484,000 from $464,000, as newer investments carried higher yields. The company’s effective tax rate rose to 20% from 17% a year earlier due to the non-cash impact of tax law changes affecting certain deductions.

However, management expects the full-year tax rate to normalize between 16% and 17%, supported by advanced manufacturing investment tax credits expected to offset $1 million in cash taxes over the next three quarters.

Management Commentary

President and CEO Daniel A. Baker highlighted that the company achieved a 4% sequential revenue increase, fueled by strong growth in distributor and non-defense sales, even as defense-related business declined as anticipated. Baker underscored that the defense segment remains important and profitable but is not central to NVEC’s long-term growth strategy.

The company’s focus is increasingly shifting toward medical devices, industrial automation and robotics markets, wherein its spintronic sensors and couplers offer miniaturization, energy efficiency and precision advantages.

Vice president of Advanced Technology, Peter Eames, emphasized that NVEC’s new equipment cluster, installed in the expanded east-end production area, enhances manufacturing capacity and enables wafer-level chip-scale packaging, allowing parts to be smaller, more precise and produced in-house.

This advancement reduces supply-chain risks and cost exposure while positioning the company for design wins in key applications such as implantable medical devices, humanoid robotics and autonomous vehicles.

Factors Influencing Performance

The revenue decline primarily stemmed from cyclical weakness in contract R&D, most of which is defense-related and subject to procurement variability. However, the company benefited from a 21% rise in non-defense product sales, partially offset by a 64% decline in defense sales.

Management attributed the lower gross margin to a shift in sales mix toward distributors and away from high-margin defense contracts. Additionally, the elevated cost of sales, up 45% year over year, was partly due to increased manufacturing activity associated to the ramp-up of new products.

Sequentially, sales momentum strengthened in core markets, with CEO Baker noting “strong increases in distributor and non-defense sales” and early signs that product introductions are beginning to drive incremental demand. NVEC also continued to invest in R&D, introducing three products in the quarter — a rotation sensor, a data coupler and a wafer-level voltage regulator — targeting industrial, energy and robotics applications.

Outlook

Management expressed confidence in continued growth for the December quarter and the second half of fiscal 2026. Baker cited a healthy sales pipeline, improving distributor demand and favorable tax credits, all of which are expected to support profitability.

The company anticipates completing the deployment of production equipment by the end of fiscal 2026 and expects to spend an additional $1-$1.5 million on capital expenditure for production expansion.

Management remains optimistic about long-term growth opportunities in high-value markets such as smart factories, medical technology and autonomous systems.

Other Developments

NVEC’s board declared a quarterly cash dividend of $1 per share, payable Nov. 28, 2025, to shareholders of record as of Nov. 3, 2025. The company also reported completing installation of new manufacturing equipment, expanding its production area, and reaffirmed plans to enhance in-house capabilities for advanced spintronic processes.