I last wrote about Nova (NVMI) as the Bull of the Day in September when shares were trading $200. I thought it was a key Semiconductor micro-player in the new AI revolution.

Nova is a $6 billion provider of metrology solutions for advanced process control used in semiconductor manufacturing. The company's product portfolio combines cutting-edge hardware and software to facilitate the production of chips for the AI revolution.

The strong "tech rally" of January sent shares up to $280 by mid-Feb. And then the "tech correction" took NVMI all the way back down to $180.

For semiconductor investors looking for a growth + value opportunity, Nova is definitely one to put on your watch list. Read on to learn why.

Why Nova is Back to Zacks #1 Rank

On February 13, Nova reported Q4 EPS of $1.94, beating the Zacks Consensus Estimate of $1.82 per share. This compares to earnings of $1.36 per share a year ago.

This quarterly report saw an earnings surprise of 6.59%. But actual year-over-year growth is what really stands out with a stunning 42.6% jump.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

As if clobbering bottom line growth by more than 95% of companies, Nova posted revenues of $194.77 million which also surpassed the Zacks Consensus Estimate by 4.43%. This compares to year-ago revenues of $134.22 million.

Which means the y-o-y topline growth was also a whopping 45%!

The company has topped consensus revenue estimates four times over the last four quarters.

After these results and guidance, analyst estimates moved higher.

This year's top line consensus now calls for ANOTHER year of 25% growth to $840 million!

And the bottom line is expected to cash-in at EPS of $8.30 for a 24% advance.

Steady Upside Surprises and Rising Growth

I was bullish on Nova for over two years because of the rising estimates and their fundamental position in a dynamic semiconductor industry surge being led by NVIDIA (NVDA).

Since my September report, Nova blew the doors off with 2 quarters of stellar results and raised guidance. But the stock has been thrown out with the rest of the sector on uncertainty about trade wars

For some background on Nova's unique place in the "chips & salsa" ecosystem of the AI revolution, let me share what I wrote last year so you see how Nova was set for lift-off...

What's Ahead for NOVA as Semiconductor Lieutenant?

Nova is a key provider of semiconductor manufacturing and measurement technologies known as metrology. They serve dozens of high-tech industries including automotive, robotics, cloud services, smart energy grids, and even AR/VR.

We'll look at the growth opportunities for NOVA in an area called the "trailing node" right after we get to understand their core evolution.

NOVA LTD, formerly known as Nova Measuring Instruments, is based in Rehovot, Israel.

Here's how the company describes their mission...

Nova's advanced multidisciplinary dimensional metrology technologies combine complex opto-mechanical hardware with advanced optics and cutting-edge algorithms to continuously innovate for effective process control throughout the semiconductor fabrication life cycle.

Where Does NVMI Fit In the Semi/AI Ecology?

Metrology is the science of measurement and nowhere is precision more needed than in the "nanosphere" of chip manufacture. A nanometer (nm) is one billionth of a meter, and this is the distance of measurement for engineering transistors onto an integrated circuit (IC) board or card.

Chips have been plunging below 10nm for the past few years as Moore's Law gets new life from GPU pioneers like NVIDIA. For comparison, the coronavirus is about 50nm.

I explained some of this in my Top Stock Picks video about Nova on Tuesday, where I also suggested that this little engineer of Semi precision and purity may be an acquisition target for larger wafer fabrication equipment (WFE) companies like Applied Materials (AMAT), Lam Research (LRCX) or KLA.

For less than $10 billion, any of these $50-100 billion Semi engineers could "bolt-on" Nova and secure their dominance in precision purity manufacturing.

What is the Trailing Node?

Last year, I also wrote an article on Global Foundries (GFS), the US-based semi "fab" operator. Ironically, the creation of GFS was borne in 2008 of a spin-off where Advanced Micro Devices (AMD) decided it didn't want to do the foundry work anymore on its own chip designs.

Here's an important excerpt relevant to NOVA...

Nodes in semiconductor manufacturing indicate the features that a node production line can create on an integrated circuit, such as interconnect pitch, transistor density, transistor type, and other new technology.

This is especially important as the "leading edge" of chip design focuses on the sub-10 nanometer transistor architecture that also places new demands on the "trailing edge" that has to be able to "connect and keep up!"

WFE Demand Historically Driven By Leading Edge and Memory

Semiconductor analyst Mark Lipacis described the industry dynamics last year, even in the midst of AI-GPU mania that exceeded his expectations...

"Historically, WFE demand was primarily driven by leading-edge logic chips like CPUs in PCs, processors used in datacenters or application processors and modems used in cellphones, led by most advanced logic and increasingly smaller and cheaper memory solutions. Consequently, ~80% of WFE spend was driven by leading edge logic and memory."

Trailing Node as a New Driver of WFE, Driven by an IoT Computing Era

Lipacis continues...

"We've argued that the industry has entered the '4th Tectonic Shift to an IoT Computing Era,' where for the first time in history, the volume computing device, IoT, requires trailing node instead of the leading-edge chips required by previous computing eras, like handsets and PCs."

Bottom line: NVMI is a vital player in the production of advanced semis and it's only trading under 6X sales. As this tech correction and tariff fallout unfolds, I think there could be a great opportunity to buy Nova near $175.

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This article originally published on Zacks Investment Research (zacks.com).

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