Nova (NVMI) Q3 2026 earnings review
Nova's chip-tool sales accelerate, and customer prepayments rebound
Nova, which makes measuring tools for semiconductor factories, posted record sales and cash flow as chipmakers expanded capacity for artificial intelligence chips. Third-quarter revenue rose 28% from a year ago to $288 million, beating the top of its plan, while chief executive Gaby Waisman set a fourth-quarter outlook that speeds growth to 39% at the middle of the range by our math. Operating cash flow nearly doubled to $138 million as customer prepayments rebounded.
| Revenue | $287.8M +28% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $2.86 +32% from a year ago |
| Free cash flow | $131.7M +97% from a year ago (by our math) |
| Fourth-quarter revenue outlook | $305–315M middle of the range: +39% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because the two main blemishes from the first half — shrinking customer prepayments and weak cash generation — reversed alongside a stronger fourth-quarter plan. Deferred revenue rose 41% from last quarter to $65 million by our math, easing the worry that Nova was only draining old orders to hit its targets. One caution: one quarter of rebuilding leaves prepayments 10% below a year ago, and management previously admitted that customers pulled orders forward into late 2026.
The question now is whether the jump above $300 million in quarterly sales is a lasting step-up or a spike from orders borrowed from 2027. If new chip designs are driving sustained tool buying, growth will hold up next year; if customer pull-ins did the heavy lifting, orders will pause early in 2027. The first-quarter 2027 outlook and Investor Day in March will settle it.
🐂 Bull Case
Fourth-Quarter Plan Speeds Sales Growth to 39%
Nova makes measuring tools, known as metrology systems, that chipmakers use to check microscopic layers during manufacturing. Chief executive Gaby Waisman said the company set sales records in memory and advanced packaging — a method of stacking chips together — driven by "capacity expansions in HBM and advanced logic", which are high-bandwidth memory and fast processor chips used for artificial intelligence.
- Third-quarter revenue: $287.8 million, up 28.2% from a year ago and 12.9% from last quarter
- Products revenue: $231.9 million, up 29.6% from a year ago
- Services revenue: $56.0 million, up 22.4% from a year ago
- Fourth-quarter revenue outlook: $305 million to $315 million, up 39.3% from a year ago at the middle of the range by our math
The second half of 2025 was flat, so part of the jump in year-over-year growth comes from an easier comparison. Even so, the fourth-quarter outlook adds another $22 million in quarterly sales at the middle of the range, up 7.7% from the third quarter, because chipmakers are buying more tools for new factory lines. By our math, the fourth-quarter plan lifts full-year 2026 revenue growth to 23.6%.
What to watch: the exact share of product sales coming from advanced packaging on the fourth-quarter earnings call. A figure at or above 25% would confirm that packaging tools are still outgrowing the rest of the business.
Prepayments Rebound and Cash Flow Nearly Doubles
Deferred revenue — cash customers pay up front for systems and services not yet delivered — is the only forward order balance Nova publishes on its balance sheet. Over the previous three quarters, that balance drained 36% to $45.9 million while first-half operating cash flow fell 29% from a year earlier, raising concern that Nova was living off old orders.
In the third quarter, the Israeli equipment maker added $19.0 million to deferred revenue by our math, lifting the balance 41.4% from last quarter to $64.9 million. Operating cash flow nearly doubled from a year ago to $138.1 million, or 140% of profit excluding one-offs by our math, as the company collected $12.1 million from customer receivables and took in $18.4 million of new customer prepayments on the cash flow statement.
One quarter of rebuilding does not settle the question, because deferred revenue is still down 9.8% from $72.0 million a year ago. What to watch: fourth-quarter deferred revenue on the year-end balance sheet. A second straight increase would show that new customer deposits are keeping pace with rising shipments.
Slower Expense Growth Lifts Operating Margin
Nova kept its gross margin — the share of sales left after the cost of making products and delivering services — steady while engineering and overhead costs grew much slower than revenue. Gross margin reached 57.7% (or 59% excluding one-offs, up one percentage point from last quarter), recovering from a dip in the second quarter.
Total operating expenses rose 15.3% from a year ago to $73.3 million, which cut their share of revenue by 2.8 percentage points by our math. Research and development fell 1.7 percentage points of revenue to 14.6%, and sales and marketing fell 0.8 percentage points to 8.2%. Because sales grew nearly twice as fast as headcount and lab costs, operating margin rose 3.8 percentage points from a year ago to 32.3%, or 35.5% excluding one-offs by our math.
What to watch: fourth-quarter gross margin in the next release. Holding 59% excluding one-offs would show that selling more memory and packaging tools is not hurting pricing.
🐻 Bear Case
Earlier Shipment Pull-Ins Still Cloud 2027 Demand
"Supported by enhanced visibility into customer investment plans, we remain confident in our ability to capture opportunities created by the industry's most advanced technology transitions," Waisman said. The metrology provider wants investors to view the current surge in tool orders as a multi-year building cycle.
In the third quarter, product sales jumped 29.6% from a year ago to $231.9 million on "demand for dimensional and materials metrology solutions". However, Waisman acknowledged last quarter that customers pulled deliveries forward into both the first and second halves of 2026. The release gives no order backlog figure and does not say how much of the third-quarter record or the $305–315 million fourth-quarter plan comes from orders customers moved up from 2027.
This matters because shipments borrowed from next year create a tougher comparison once factories finish their initial tool installations. What to watch: the first-quarter 2027 revenue outlook, which arrives in February. A sequential drop from the fourth quarter's $310 million middle of the range would indicate that 2026 pull-ins left an air pocket.
Convertible Debt Dilution Trims Per-Share Profit Growth
Nova issued $750 million of zero-interest convertible notes in the third quarter of 2025, which can turn into stock and increase the number of shares used to calculate profit per share. Because those notes entered the share count, diluted shares rose 6.0% from a year ago to 34.43 million, so GAAP profit per share grew 38.9% even though total net income rose 46.5% by our math.
The company spent $38.5 million to buy back treasury shares during the third quarter, more than the $35.0 million it spent in all of 2025. That buyback helped edge the diluted share count down slightly from 34.45 million in the second quarter, and Nova switched $734.6 million of convertible notes back to long-term debt on the balance sheet. What to watch: diluted share count in the fourth-quarter report, which will show whether buybacks keep offsetting dilution from the notes.
Risks this quarter didn't answer
Five standing concerns from earlier quarters received no new numbers in the third-quarter earnings release because Nova reports product and geographic splits on its conference call and in filings.
- China and customer concentration: China represented about 30% of sales in prior periods; the annual 20-F filing will show whether export rules changed that share.
- Stretched component suppliers: management previously noted four-to-twelve-month supplier lead times; commentary on the call will show if component delays are limiting shipments.
- 3D NAND memory recovery: previously pushed out to next year while DRAM and HBM led memory sales; the call will test if NAND chipmakers have resumed ordering.
- Gate-All-Around cumulative sales: progress toward the $500 million 2024–2026 target for next-generation transistor tools wraps up next quarter and needs a final tally at year-end.
- Underlying packaging growth: the release credits Advanced Packaging records to HBM and logic without separating out Sentronics, the business acquired in early 2025.
💲 Other KPIs
Free cash flow — operating cash flow minus property and equipment purchases — nearly doubled, rising 96.8% from a year ago to $131.7 million by our math after shrinking in the first two quarters of 2026. Capital spending stayed light at $6.4 million, or 2.2% of revenue, leaving free cash flow at 45.8% of sales.
Uncollected customer bills (trade accounts receivable) rose 30.3% from the end of 2025 to $197.9 million by our math, roughly matching the 29.3% rise in quarterly sales over that span. Inventories rose 9.3% from year-end to $200.7 million as the company stocked parts for fourth-quarter shipments.
🔮 Guidance
New. The plan calls for $310 million at the middle of the range, up 39.3% from a year ago and 7.7% above the third quarter by our math. That puts full-year 2026 revenue on track for $1.09 billion, up 23.6% from 2025 and well above the earlier double-digit floor. Nova has beaten its quarterly revenue midpoint for four straight quarters by an average of 2.2%, which would put Q4 at $316.9 million if the pattern holds.
New. The middle of the range is $2.86 per share, up 47.2% from a year ago and 8.1% from the third quarter by our math. The increase follows higher planned revenue, against $0.23 per share of stock pay and $0.07 of intangible asset charges.
New. Profit per share excluding one-offs is planned at $3.11 at the middle of the range, up 45.1% from a year ago and 8.6% above the third quarter by our math. That steps up from 32.4% year-over-year growth in the third quarter as factory volume rises.
❓ Key Questions
What drove the $19 million jump in deferred revenue?
Current deferred revenue climbed 41.4% from last quarter to $64.9 million after falling for three straight quarters. Did customers make prepayments for 2027 tool deliveries, or are shipped tools waiting on factory floor sign-offs?
How much of the fourth-quarter surge is pulled-in demand?
Management previously said customer pull-ins were driving the second half of 2026. With the fourth-quarter revenue plan stepping up to $305–315 million, how much of that volume was originally scheduled for 2027?
Did Nova reach its $500 million Gate-All-Around sales goal?
Nova targeted $500 million in total revenue from Gate-All-Around logic transistor tools across 2024 through 2026. With one quarter left in the three-year window, what is the cumulative figure to date?
Will share buybacks continue after the $38.5 million purchase?
Nova bought back $38.5 million of stock in the third quarter after buying none in the first half, and moved its $734.6 million convertible notes back to long-term debt. Is this a one-time purchase or an ongoing plan to offset dilution?