Until two weeks ago, Israeli chip inspection companies Camtek (Nasdaq: CAMT; TASE: CAMT) and Nova Ltd. (Nasdaq:NVMI; TASE:NVMI) had starred on Wall street since the start of 2024, each rising by just over 100% to record highs, which also helped lift the Tel Aviv 35 Index this year.
However, since the peak reached by both stocks earlier this month, they have weakened by double digits on Wall Street, with declines intensifying last week. Nova has lost 16.7% of its value since July 9, thus losing $1.2 billion of its market cap, while Camtek is down 21% since July 8, shaving $1.3 billion off its market cap..
The two Israeli companies, which supply equipment for testing production processes of chips, are not alone: last week the shares of chip manufacturing and chip equipment companies fell on Wall Street due to geopolitical developments. US presidential candidate Donald Trump said Taiwan should pay the US for protection, which led to weakness in TSMC (Taiwan Semiconductor) shares, and later it was reported that the Biden administration is considering increasing restrictions on the sale of critical chip equipment to China.
The BBC quoted TECHnalysis Research chief analyst Bob O’Donnell as saying, "Regardless of the outcome of the elections... I think we will see the US increase some of the restrictions. How far they will take it, though, is the big question."
"The Financial Times" quoted AJ Bell investment analyst Dan Coatsworth saying, "Investors have got used to nonstop good news from tech stocks, so the slightest bit of negativity has caught people off guard and caused panic on the markets,"
Never traded at such multiples before
After the impressive gains and records in the Israeli chip equipment stocks, is a change of direction expected? Oppenheimer Israel senior analyst Sergey Vastchenuk distinguishes between the stocks and the businesses themselves. "Usually, stocks give direction about the state of a business long before the change begins to be reflected in the business itself," he says, and mentions that Nova and Camtech stocks started to rise last year, in which a relatively difficult market for chips was still evident.
"In the chip market, we are in a 'super cycle,' so-called, and shares in the market have soared in a relatively short period of time to record highs and unprecedented prices. Nova and Camtek and chip equipment shares have never traded at such multiples before - multiples that are high not only for a market that is essentially cyclical, but high also in an absolute way, for example for companies that grow 20%-30% per year over time. As someone who has known the field for decades, I really struggle to understand these pricings. In the end, despite the very strong business momentum and the AI revolution that has implications for the chip market, this is still a cyclical field and it cannot be underestimated. It is clear that after some very good years there will be less good years as well. It always was and always will be."
Chip company Tower Semiconductor was hit less than Camtek and Nova last week. Why?
"Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE:TSEM) is different from Camtek and Nova. It is not an equipment company but buys equipment and so pressures there can benefit it. The second thing is that it is very cheaply priced, not trading at a premium like Camtek and Nova. Tower is a cheap stock, and the pricing has an impact. At Tower there has been less hype and things are more stable. In my opinion, all the nationalism in the field of chips can help it, because it does not have factories in China, but on the other hand it has Chinese customers."
Published by Globes, Israel business news - en.globes.co.il - on July 22, 2024.
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