Nova Measuring and Other Semiconductor Equipment Companies Gain Value Post-Upgrades
Investing.com -- Shares of semiconductor equipment companies such as Nova Measuring Instruments (NASDAQ: NVMI), Veeco Instruments (NASDAQ: VECO), MKS Instruments (NASDAQ: MKSI), Advanced Energy Industries (NASDAQ: AEIS), and FormFactor (NASDAQ: FORM) experienced significant increases during today's trading session. Nova Measuring Instruments' stock rose by 7%, while Veeco Instruments and MKS Instruments also increased by 7%, and Advanced Energy Industries and FormFactor saw increases of 3.5% and 5%, respectively.
This upward movement in the stocks followed a series of upgrades by Citi analysts. The companies have faced a challenging environment due to a combination of factors including expected corrections in the second half of 2024, weak consumer memory demand, and additional U.S. restrictions affecting domestic spending in China. Despite these adverse conditions, analysts believe that the risk-reward balance is now skewed to the upside. The stocks are trading closer to historically attractive price-to-earnings levels and at discounts compared to broader market indices.
Analyst Atif Malik indicated a positive shift in sentiment towards these companies, stating, "We are upgrading NVMI, VECO, MKSI, AEIS, and FORM." This optimistic stance is supported by expectations that key performance indicators such as forecast revisions and memory pricing momentum will bottom out in the first half of 2025. Additionally, ongoing investments in artificial intelligence are expected to positively impact the sector.
The overall outlook for the semiconductor equipment industry remains cautious. Capital expenditures (capex) in the sector are expected to decline by 5% year-over-year in 2025. Analysts anticipate that leading AI investments will fully offset weak demand in mature logic, industrial, and automotive sectors, as well as the decline in domestic spending in China. In memory, a 23% drop in DRAM spending is expected, while this decrease is anticipated to be balanced by investments in High Bandwidth Memory (HBM), and NAND spending is expected to remain flat due to delayed technology transitions.
Looking ahead, analysts expect semiconductor equipment manufacturers to lower their previous growth expectations for the sector in January, following Micron's warnings regarding NAND capex cuts. This recalibration is viewed as a cleansing event for the sector. The potential for PC DRAM inventory replenishment and DRAM prices hitting a bottom in the second quarter of 2025 are seen as the next significant catalysts.
Among small and mid-cap companies, Nova Measuring Instruments is favored due to its broad metrology product portfolio and diversified exposure to leading foundry, logic, and HBM customers. Veeco Instruments is recognized for its market share gains in the laser and nanosecond annealing space. This positions these companies well for potential growth opportunities in 2025.