Until two weeks ago, Israeli chip testing companies were Kamtech (NASDAQ: CAMT, TSE: CAMT) and Nova Co., Ltd. (NASDAQ:My soul; level:My soul) have been shining on Wall Street since the start of 2024, each rising just over 100% to record highs, also helping lift the Tel Aviv 35 Index this year.
However, since their peak earlier this month, both companies have slumped by double digits on Wall Street, with declines intensifying last week. Nova has lost 16.7% of its value since July 9, wiping out $1.2 billion in market value, while Camtech has fallen 21% since July 8, wiping out $1.3 billion in market value.
The two Israeli companies supplying the equipment needed to test chip production processes were not alone: Last week, shares of chipmakers and chip equipment companies on Wall Street fell on geopolitical developments. US presidential candidate Donald Trump said Taiwan should pay the US for protection, sending shares of Taiwan Semiconductor (TSMC) into a tailspin, and the Biden administration was later reported to be considering increasing restrictions on the sale of vital chip equipment to China.
“Regardless of the election results… I think we’re going to see the US increase some restrictions. But the big question is how far they’re going to go,” Bob O’Donnell, chief analyst at TECHnalysis Research, told the BBC.
“Investors are used to continuous good news from technology stocks, so the slightest bit of negativity has caught people off guard and caused panic in the markets,” Dan Coatsworth, investment analyst at AJ Bell, told the Financial Times.
I have never traded with such multiples before.
After the impressive gains and records achieved by Israeli chip equipment stocks, is a change in trend expected? Sergey Vaschenok, senior analyst at Oppenheimer Israel, distinguishes between stocks and the companies themselves. “Stocks usually give guidance about the state of the company long before the change begins to be reflected in the company itself,” he says, noting that Nova and Camtech stocks started to rise last year, when the chip market was still relatively tough.
“In the chip market, we are in a so-called ‘supercycle’, where market shares have risen to record highs and unprecedented prices in a relatively short period of time. Nova, Camtech and chip equipment shares have never traded at such multiples before – high multiples not only for a fundamentally cyclical market, but also high in an absolute sense, for example for companies that are growing 20%-30% per year over time. As someone who has known the industry for decades, I find it very difficult to understand this pricing. Ultimately, despite the very strong business momentum and the AI revolution that is having implications for the chip market, this is still a cyclical industry and cannot be underestimated. It is clear that after some very good years there will also be less good years. That has always been the case and it will continue to be the case.”
Chipmaker Tower Semiconductor took less damage than Camtek and Nova last week. Why?
“Tower Semiconductor Co., Ltd. (NASDAQ: TSEM; level:TSEM“Tower is different from Camtech and Nova. It’s not a hardware company, but it buys equipment, so the pressures there could benefit it. The second thing is that it’s very cheap, it’s not trading at a premium like Camtech and Nova. Tower is a cheap stock, and pricing has an impact. Tower has had less noise and things are more stable. In my opinion, all the nationalism in the chip space could help it, because it doesn’t have factories in China, but on the other hand it has Chinese customers.”
