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, accounting for a large part of its rise this year. The two companies, Camtek (TASE: CAMT; Nasdaq: CAMT) and Nova (TASE: NVMI, Nasdaq: NVMI) (known as Nova Measuring Instruments until July 2021), are capitalizing on the AI trend, and their success in this area has helped… Aviv is in a difficult period.
The Tel Aviv 125 Index, made up of blue-chip stocks on the Tel Aviv Stock Exchange, rose 12% in the past year, led by four major stocks: Teva Pharmaceuticals (TASE: TEVA, NYSE: TEVA), NYSE (TASE: NYSE; NASDAQ: NYSE). ), Nova and Camtec.
The latter two companies produce inspection systems for the semiconductor manufacturing process. It is among the highest-yielding stocks on the Tel Aviv Stock Exchange. Nova doubled its market value last year, reaching a peak of about NIS 21 billion, making it the tenth most valuable company on the stock exchange. Camtek rose 245% last year, becoming the 12th most valuable company on the stock market, with a market capitalization of NIS 15 billion. Between them is another Israeli company in the semiconductor sector, Tower Semiconductor (TASE: TSEM, Nasdaq: TSEM). Its share price fell by 10% over the same period, giving it a current market capitalization of NIS 15.2 billion.
All three companies released good quarterly financials last Thursday, and investors responded positively, with Camtek stock up as much as 10%, and the other two up 3-4%.
Together, Nova and Camtek represent 9% of the Tel Aviv 35 Index. Sabina Podval-Levy, head of research at Leader Capital Markets, believes that these two stocks represent 30% of the 19% rise in this index since Camtek joined it last November. Their share in the 14% rise in the Tel Aviv 125 Index last year is no less than 50%.
But are these two stocks still attractive after such sharp rises, and why has Tower Semiconductor lagged behind? We asked the experts.
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Nova, headed by Gabriel Weissman, provides measurement solutions for controlling the semiconductor production process. Camtek, headed by Ravi Amit, also produces inspection equipment for semiconductor manufacturing. Nova has no controlling shareholder. Its largest shareholders are financial institutions in the United States and Israel, including Fidelity, Menorah Mivtashem, Migdal, and Harel. In the past five years, its stock has returned 624%.
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Camtek's largest shareholder is Priortech Holdings (TASE: PRTC), with a 21.7% stake. Five years ago, Taiwanese company Chroma invested in the company, and currently owns 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 has increased by 870%.
The rise in the stock prices of the two companies gained momentum when their field of activity became hot news towards the end of 2022, after the rapid rise in the share price of semiconductor leader Nvidia, the stock with the highest return on the S&P 500. List. The entire semiconductor industry has benefited from the boom in artificial intelligence, which has boosted demand for its products for new technological developments in this field.
Nova and Kamtec (like Tower, Teva, and NICE) are dual-listed stocks, traded on the local stock exchange and in New York, most of their business is outside Israel, and in US dollars. Therefore, it is less affected than other Tel Aviv Stock Exchange companies by factors affecting the local market.
Nova and Camtek currently trade at very high P/E ratios, around 35. This is slightly lower than Microsoft's P/E, and higher than Apple's P/E, for example, which is around 27. Pricing Doesn't Make It Expensive?
Noah Sherman. Equity research analyst at More Investment House believes there is an uptrend in both stocks. “Neither is cheap, but the market believes there is a fundamental change happening in their field,” she explains. “So far, there have been cycles of a good year and a half to two years, followed by a period of stability, then a 'hole', due to inventory build-up, and then a return to growth.
“The main growth driver in the semiconductor market has been smartphones. Comps rose when smartphone sales rose, and fell when demand fell. However, more recently, electric cars, which use a lot of chips, have been added to the picture as well. Such as artificial intelligence , which is thriving even as we speak. Although AI chips currently only account for 5-7% of sales, estimates for next year will range between 15-17%, and double-digit growth is expected in each of the three to four years. Coming.”
Chief Bodval Levy agrees with Sherman. “The chip sector is currently going through an upward part of the cycle, and we are seeing increased investment in this sector. Once chip manufacturers upgrade their capabilities, they need inspection equipment. So, while it is true that Nova and Camtek have had their stock prices rise significantly, “This makes investors apprehensive, and it is clear that we are in the midst of structural change, and a revolution is taking place in this sector, so the rise in stock prices stems from sentiment and from improved results.”
Oppenheimer & Co. is less optimistic, estimating that, at least in Nova's case, “future growth potential is priced into current value…despite continued positive momentum in the chip market.” Therefore, the investment house maintains a “market perform” rating for the stock. “The stock is trading at a leading P/E ratio of 30 according to our updated 2025 estimates,” says Sergey Vaschenok, senior equity analyst at Oppenheimer.
Investment bank Jefferies gave Camtek a “buy” recommendation with a price target of $120, which represents an upside of about 32% from the stock price before the open of trading on Monday. As for Nova, the bank remains positive and gave a price target of $240, about 24% above the stock price before trading opened on Monday, and 20% above the previous target price.
Jeffries notes that the advanced packaging space and demand for HBM (high bandwidth memory) and microchip applications are expected to support Camtek's continued growth. At Nova, the bank points to the electric vehicle space as a growth channel for the company.
The tower was left behind
As mentioned, Tower is the third company trading the semiconductor sector on the Tel Aviv Stock Exchange. Until recently, its market capitalization was much greater than that of Camtek, but the latter has closed the gap.
Tower produces analog chips, which are simpler than digital chips. The Maalot credit rating company indicated in a recent report that the risks facing Tower in this area were low “due to its specialized activity,” but its capabilities were “limited.” “The company must invest significantly in R&D and in fixed assets in order to maintain a technological advantage,” he wrote with Lotte, adding that “the rapid technological development that characterizes the semiconductor sector represents a material risk to Tower.”
Published by Globes, Israel Business News – en.globes.co.il – on May 15, 2024.
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