By Adam Levine

Bolstered by AI investment, Nvidia has sold $92 billion of data center hardware in the last five quarters, versus just $19 billion in the five previous quarters. With its 77% gross margin, most of those dollars stay with Nvidia, but there is still plenty left for those downstream from its demand.

On Tuesday morning, results from a little-known company called Camtek showed just how powerful Nvidia's coattails can be. For the first nine months of 2024, Camtek's revenue was up 38% from the year before. The company makes measurement and inspection equipment required to run the latest AI manufacturing lines, a process known in the industry as advanced packaging.

For Camtek, revenue from advanced packaging applications is now roughly 70% of revenue, a total of about $218 million in the first nine months of the year. That's up from zero a few years ago. Camtek is also rolling out new machines for the next generation of advanced packaging.

Camtek shares were up about 2% in Tuesday afternoon trading, bringing its 2024 stock gains to 16%.

The positive report bodes well for continued AI demand across the technology space.

Camtek sells to Nvidia's primary suppliers, including Taiwan Semiconductor Manufacturing, SK Hynix, and Micron. TSMC provides the graphics processing units, or GPU chips, and the others supply high bandwidth memory. The GPU chips and the memory chips are both compounds of smaller chips connected together to form a single unit, known as advanced packaging.

For the GPUs, making small "chiplets" that are packaged together reduces costs versus larger chips. In high bandwidth memory, chips are stacked on each other to produce the speed needed for AI workloads. In either case, these are complex combinations of chips that require special equipment and processes.

When the fierce demand for Nvidia GPUs hit in the spring of 2023, all these companies were taken by surprise, and they didn't have nearly enough advanced packaging capacity.

In September of that year, TSMC Chairman Mark Liu told attendees at the Semicon Taiwan conference that the bottleneck was advanced packaging. He said TSMC needed to triple its advanced packaging capabilities for Nvidia, and that it would take 18 months. In the meantime, Nvidia has been forced to look to other suppliers of advanced packaging like Amkor.

The memory manufacturers also couldn't produce enough high bandwidth memory for Nvidia, and had to drastically expand their capacity.

All of these Nvidia suppliers are making major capital outlays to get their capacity to where Nvidia needs it to be. And all of them source one type of equipment from Camtek, a small manufacturer based in Israel.

On the heels of the Nvidia GPU demand explosion in 2023, Camtek produced a series of press releases touting big orders for its high-end equipment. In 2024, those orders began shipping.

In the first nine months of 2024, Camtek's earnings per share reached $1.75, up 46% from 2023. For the third quarter, EPS was up 46% on a 40% revenue gain.

And it looks like the demand will continue into 2025, Camtek said on Tuesday. There have also been several announcements of new advanced packaging facilities, most recently with TSMC and Amkor announcing new capacity in Arizona.

Tuesday's report from Camtek was one more test of the continuing demand for AI equipment and services. Investors should be pleased with the results. Shares of Nvidia were up about 2% Tuesday afternoon, extending its lead as the world's most valuable company.

Write to Adam Levine at adam.levine@barrons.com

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November 12, 2024 12:33 ET (17:33 GMT)

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