Two chip cos pull TASE upwards

Nova offices in Rehovot  credit: Eyal Izhar
Nova offices in Rehovot credit: Eyal Izhar

Camtek and Nova have given triple-digit returns in the past year, accounting for much of the rise in the main TASE indices. Can they maintain the momentum?

Two companies active in the international semiconductor industry that are traded on the Tel Aviv Stock Exchange have become shock absorbers for the local market, and account for a substantial part of its rise this year. The two, Camtek (TASE: CAMT; Nasdaq: CAMT) and Nova (TASE: NVMI; Nasdaq: NVMI) (known as Nova Measuring Instruments until July 2021), are benefitting from the artificial intelligence trend, and their success in that field has helped the Tel Aviv Stock Exchange indices in a difficult period.

The Tel Aviv 125 Index, composed of the leading stocks on the Tel Aviv Stock Exchange, has risen 12% in the past year, led by four main stocks: Teva Pharmaceutical Industries (TASE: TEVA; NYSE: TEVA), Nice (TASE: NICE; Nasdaq: NICE), Nova and Camtek.

The last two companies produce inspection systems for the semiconductor manufacturing process. They are among the stocks with the highest returns on the Tel Aviv Stock Exchange. Nova has doubled its market cap in the past year, reaching a peak of nearly NIS 21 billion, making it the tenth most valuable company on the exchange. Camtek has soared by 245% in the past year, to become the twelfth most valuable company on the exchange, with a market cap of NIS 15 billion. Between them is another Israeli company in the semiconductor sector, Tower Semiconductor (TASE: TSEM; Nasdaq: TSEM). Its share price has fallen by 10% over the same period, to give it a current market cap of NIS 15.2 billion.

All three companies released good quarterly financials last Thursday, and investors responded positively, with Camtek rising by as much as 10%, and the other two rising 3-4%.

Together, Nova and Camtek represent 9% of the Tel Aviv 35 Index. Sabina Podval Levy, head of research at Leader Capital Markets, finds that these two stocks account for 30% of the 19% rise in that index since Camtek’s accession to it last November. Their share in the 14% rise in the Tel Aviv 125 Index in the past year is no less than 50%.

But are these two stock still attractive after such steep rises, and why has Tower Semiconductor been left behind? We asked the experts.

Send the flowers to Nvidia

Nova, headed by Gabriel Waisman, supplies measuring solutions for control of the semiconductor production process. Camtek, headed by Rafi Amit, also produces inspection equipment for semiconductor manufacture. Nova has no controlling shareholder. Its largest shareholders are financial institutions in the US and Israel, among them Fidelity, Menorah Mivtachim, Migdal, and Harel. In the past five years, its stock has returned 624%.

The largest shareholder in Camtek is holding company Priortech (TASE: PRTC), with a 21.7% stake. Five years ago, Taiwanese company Chroma invested in the company, and it currently holds 17.7%. The investment was made at a share price of $9.5, about a tenth of the current price. In the past five years, Camtek’s market share price has risen 870%.

The rise in the share prices of the two companies gathered momentum when their field of activity became hot news towards the end of 2022, following the meteoric rise in the share price of leading semiconductor stock Nvidia, the stock with the highest return on the S&P 500 list. The entire semiconductor industry has benefitted from the surge in artificial intelligence, which has boosted demand for its products for new technological developments in that area.

Nova and Camtek (like Tower, Teva, and Nice) are dual-listed shares, traded both on the local stock exchange and in New York, and their business is mostly outside of Israel, and in US dollars. They have therefore been less affected than other Tel Aviv Stock Exchange companies by factors weighing on the local market.

Nova and Camtek are currently traded at very high p/e ratios, of around 35. This is just slightly below the p/e ratio of Microsoft, and higher than that of Apple, for example, which is at about 27. Does the current pricing not make them too expensive?

Noa Sherman. equity research analyst at More Investment House, believes that there is upside in both stocks. "Neither is cheap, but the market thinks that substantial change is taking place in their field," she explains. "Up to now, there were cycles of one and a half to two good years, followed by a plateau, and then a ‘hole’, because of an accumulation of stock, and then a return to growth.

"The main growth driver in the semiconductor market used to be smartphones. Companies rose when smartphone sales rose, and fell when demand declined. Recently, however, electric vehicles, which use a lot of chips, have been added to the picture, as well as AI, which is burgeoning even as we speak. Although chips for AI currently represent only 5-7% of sales, the estimate for next year 15-17%, and double digit growth is expected in each of the next 3-4 years."

Leader’s Podval Levy agrees with Sherman. "The chip sector is currently in an upward part of the cycle, and we are seeing a rise in investment in the sector. As soon as the chip manufacturers upgrade their capacity, they need inspection equipment. So while it’s true that Nova and Camtek have risen substantially and the pricing is high, which makes investors apprehensive, it’s clear that we are in the throes of structural change, and a revolution is taking place in the sector. So the rise in the share prices stems both from sentiment and from improved results."

Oppenheimer & Co. is less optimistic, and estimates that, at least in the case of Nova, "the potential for future growth is priced into the current value… despite continuing positive momentum in the chips market." The investment house therefore maintains a "Market perform" rating for the stock. Oppenheimer senior equity analyst Sergey Vastchenok says that "the stock is traded at a leading p/e ratio of 30 on our updated estimates for 2025."

Investment bank Jefferies gave Camtek a "Buy" recommendation with a  price target of $120, a roughly 32% upside on the share price before the opening of trading on Monday. As for Nova, the bank remains positive and gave a price target of $240, about 24% above the share price before the opening of trading on Monday, and 20% above the previous price target.

Jefferies notes that the field of advanced packaging and the demand for HBM (High Bandwidth Memory) and chiplets applications are expected to support the continued growth of Camtek. On Nova, the bank points to the electric vehicle field as a growth channel for the company.

Tower left behind

As mentioned, Tower is the third company in the semiconductor sector trade n the Tel Aviv Stock Exchange. Until recently, its market cap was much larger than that of Camtek, but the latter has closed the gap.

Tower produces analog chips, which are simpler than digital chips. Credit rating company Ma’alot pointed out in a recent report that the risk to Tower in that field was low, "because of its niche activity", but that its potential was "limited." "The company must invest massively in research and development and in fixed assets in order to maintain a technological advantage," Ma’a lot writes, adding, "The rapid technological development that characterizes the semiconductor sector represents a material risk for Tower."

Published by Globes, Israel business news - - on May 15, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Nova offices in Rehovot  credit: Eyal Izhar
Nova offices in Rehovot credit: Eyal Izhar
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