NVE Corporation (NVEC Quick QuoteNVEC - Free Report) has been upgraded to “Outperform,” based on improving business fundamentals, growing exposure to attractive end markets and the successful completion of a multi-year manufacturing expansion that positions the company for stronger growth in fiscal 2027 and beyond.

The company, a leader in spintronics-based sensors, couplers and memory technologies, is benefiting from accelerating demand across the non-defense markets while simultaneously preparing for a recovery in defense-related revenues. These trends, combined with enhanced manufacturing capabilities and expanding opportunities in the Artificial Intelligence of Things (AIoT), support a more favorable outlook for the stock.

Defense Business Poised for Recovery

Defense sales have weighed on results over the past year due to procurement cycles. In the fourth quarter of fiscal 2026, defense sales declined sharply year over year, while full-year defense sales also remained under pressure. However, management indicated that the defense business has been steadily recovering over the past year and expects defense sales to increase significantly in fiscal 2027. Contract R&D revenues, which are largely defense and government-related, are also expected to improve in the coming year.

This expected rebound provides an important growth lever for NVEC. With defense activity normalizing after an extended downturn, the company could benefit from higher product shipments and increased research-related revenues.

Manufacturing Expansion Drives Additional Growth Capacity

One of the most important developments for NVE is the completion of its major manufacturing expansion. During fiscal 2026, the company invested heavily in new production equipment and substantially completed a two-year, multi-million-dollar expansion program. Management expects capital expenditure to decline significantly going forward as the expansion phase concludes.

The newly installed equipment increases manufacturing capacity, improves process precision, and enables the production of smaller and more advanced wafer-level chip-scale products. Per management, the new equipment allows extremely precise control of spintronic material deposition and is already being used to fulfill orders for new high-performance TMR sensors.

Importantly, the company has also begun realizing operational benefits from these investments. Fiscal 2026 operating expenses declined 15% year over year as certain wafer-level packaging activities were completed and resources were reallocated toward manufacturing and product development.

With expansion-related spending largely behind it, NVEC enters fiscal 2027 with significantly greater capacity and a more scalable manufacturing platform.

Non-Defense Products Continue to Drive Growth

While defense markets remained weak, NVE delivered impressive growth across its non-defense business.

Fiscal fourth-quarter product sales increased 6% year over year, driven by a 34% rise in non-defense product sales. Management noted that growth occurred across most non-defense product lines and sales channels. For the full fiscal year, non-defense product sales increased 21%, helping offset weakness in the defense markets.

The company continues to benefit from demand in industrial automation, medical devices, energy conversion and advanced sensing applications. Fiscal 2026 product sales increased 2.4% to $25.2 million, accounting for nearly 96% of the total company revenues.

NVE’s expanding product portfolio is also supporting growth. During the past year, the company introduced wafer-level chip-scale sensors, gear-tooth rotation sensors and angle rotation sensors while continuing the development of next-generation medical sensors, ultrahigh-sensitivity TMR sensors and advanced MRAM technologies.

Positioned for Long-Term Growth in AIoT & Robotics

Perhaps the most compelling aspect of the investment thesis is NVEC’s alignment with several high-growth technology trends.

The company specifically targets Industrial Internet of Things and AIoT applications through its sensor, coupler and power product portfolio. Management describes AIoT and advanced factory automation as major end markets for its products, with applications spanning robotics, industrial networks and intelligent sensing systems.

During the earnings call, management highlighted robotics, advanced manufacturing and AIoT as strategic focus areas. The company exhibited at major industry trade shows focused on sensors, robotics and AI-enabled industrial applications and emphasized its advantages in precision motion sensing, smart edge sensing and miniaturized form factors.

NVE also sees opportunities in advanced humanoid robotics, highly automated factories and medical robotics. Its newest wafer-level chip-scale sensor measures just 0.65 millimeters on a side, enabling highly compact designs for medical devices and precision robotic systems.

The company’s power conversion products may also benefit from increasing AI infrastructure investment. Management noted that its products offer efficiency advantages that can be valuable in power-intensive environments such as data centers, where even small improvements in power efficiency can create meaningful benefits.

Investment Thesis

NVEC’s investment profile has improved considerably over the past year. The company now combines a recovering defense business, accelerating non-defense demand, completed manufacturing expansion and growing exposure to secular growth markets, such as AIoT, robotics, industrial automation and medical devices.

Management has expressed optimism regarding future growth, citing favorable semiconductor industry conditions, ample inventories, exciting new products and significantly expanded manufacturing capacity.

Given these catalysts, along with the company’s differentiated spintronics technology platform and strong profitability, we believe that risk-reward has become increasingly attractive. Accordingly, we are upgrading NVE’s rating to “Outperform”.