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The semiconductor industry is growing rapidly, driven by its crucial role in artificial intelligence (AI). With the market for AI projected to grow at a 36.6% CAGR through 2030, the demand for advanced semiconductors has never been higher. As AI applications push the boundaries of computing power, semiconductors are becoming mission-critical for enterprises globally.
As investors increasingly seek out undervalued assets with high growth potential, a rotation into small-cap stocks has been underway. This shift is particularly relevant in the semiconductor space, where concerns about overcrowded mega-caps are starting to deter prospective investors.
With this in mind, BofA Securities included a pair of small-caps in its recent assessment of opportunities within semiconductor stocks. Among the brokerage firm's list of semiconductor stocks with attractive valuations, BofA highlighted two small-cap chip players in particular, calling out their “quality exposure to structurally rising chip design/assembly complexity.”
Let's take a closer look at these two under-the-radar semiconductor stocks that could be valuable additions to your investment portfolio.
#1. Camtek
Founded in 1997, Camtek (CAMT) is a leading semiconductor manufacturing company that specializes in advanced inspection and measurement equipment for the semiconductor industry. Its diverse products, including the Eagle-i and Golden Eagle systems, offer unparalleled 2D and 3D metrology. These solutions tackle complex challenges in advanced packaging and fanout wafer-level applications, significantly enhancing the accuracy and efficiency of manufacturing processes in these critical areas.
Valued at $4.5 billion, shares of Camtek are up by 100% over the past 52 weeks, and have surged around 2,663% over the past decade, outperforming the broader market index by a substantial margin.
This impressive growth is driven by Camtek's strong financial performance, a competitive market position, and continuous innovation in the semiconductor industry. Technological advancements like 5G adoption and the proliferation of IoT devices have fueled demand for the company's products, and Camtek's strategic position within the global supply chain has further solidified its position in the industry.
The company also offers a generous dividend of $5.32 on an annualized basis, which translates into a forward yield of 1.30%.
Camtek has grown rapidly over the past 5 years, with sales exceeding $315.4 million in 2023, up sharply from $155.8 million in 2020. This momentum carried through to the Q1 earnings print, with revenue coming in at $97 million, surpassing analysts' expectations by $3.4 million. Additionally, net income reached $24.8 million, with adjusted EPS of $0.63 surpassing the consensus estimate.
The company is set to report quarterly earnings before the market opens this Thursday, Aug. 1, with analysts looking for adjusted EPS of $0.64 on revenue of $101.26 million.
Camtek stock has received a consensus rating of "Strong Buy" from Wall Street analysts. This includes 6 "Strong Buys," 1 "Moderate Buy," and 1 "Hold" rating. Analysts have set a mean price target of $118, implying an expected 25.4% premium from current levels.
#2. Nova Ltd
Founded in 1993, Nova (NVMI) is an under-the-radar semiconductor company specializing in designing, developing, and selling process control systems for semiconductor manufacturing. Based out of Israel, the firm operates globally, including in Taiwan, the U.S., China, Korea, and other regions.
Nova offers a diverse range of metrology platforms, which are used for dimensional, film, material, and chemical metrology measurements crucial for process control across various semiconductor fabrication stages, such as lithography, electrochemical plating, and advanced packaging. The company serves multiple segments within the integrated circuit manufacturing industry, including logic, foundries, memory manufacturers, and process equipment producers.
Valued at $5.85 billion by market cap, Nova shares are up by 60.2% over the past year, compared to the S&P 500 Index's ($SPX) gains of 18.6%.
In May, the semiconductor firm reported its first quarter earnings for 2024, which beat analysts' expectations on the top and bottom line. Sales reached $141.8 million, marking a 7.5% increase year over year. Complementing this growth, the company boasts a robust EBITDA margin of 28%, which is significantly higher than the average margin of 10% within its sector.
On the bottom line, the company earned a profit of $1.15 per share, or $1.39 on an adjusted basis - pushing past analysts' expectations by 11 cents.
Turning to the balance sheet, the firm generated a robust free cash flow of $56.6 million in Q1, more than double its year-ago FCF. This demonstrates the company's strong operational efficiency and ability to convert revenue growth into substantial cash reserves, positioning it well for future investments and strategic opportunities.
Analysts are looking for revenue of $148.12 million when NVMI reports earnings again next week, which would signify a growth rate of 21.3%. Adjusted earnings are expected to arrive at $1.36 for Q2.
Nova is currently rated as a "strong buy" among 5 Wall Street analysts, with an expected 22% upside potential, based on the average price target of $241.60.
