NOVA (CAAS) Q2 2025: Gross Margin Hits 60% on Advanced Packaging and Gate-All-Around Tailwinds
NOVA extended its record-breaking streak in Q2 2025, delivering gross margin at the top of its target range and demonstrating robust execution across logic, memory, and advanced packaging markets. The company’s diversified metrology portfolio and expansion in gate-all-around and advanced packaging positioned it to capture secular growth from AI and semiconductor complexity. Management’s guidance and commentary signal confidence in sustained outperformance, even as industry peers face regional volatility and customer CapEx shifts.
Summary
- Metrology Demand Escalates: Advanced packaging, logic, and memory customers are driving adoption of NOVA’s platforms.
- Gross Margin Expansion: Product mix and operational leverage pushed margins to the upper end of guidance.
- Secular Tailwinds Extend Visibility: AI, gate-all-around, and packaging complexity are reinforcing multi-year growth runway.
Performance Analysis
NOVA posted its fifth consecutive record quarter, with revenue growth underpinned by strong demand in logic/foundry and memory segments. The company’s product revenue was split approximately 75% logic/foundry and 25% memory, highlighting the business’s exposure to the most advanced semiconductor investments. Four customers and four territories each contributed at least 10% of product revenue, reflecting a well-diversified geographic and customer base. Advanced packaging and chemical metrology led segment outperformance, with service revenue also setting a new record, up 7% sequentially and 31% year-over-year.
Gross margin reached 60% (non-GAAP), at the high end of NOVA’s 57%-60% target, driven by favorable product mix and operational discipline. Operating margins also exceeded the upper end of the target range, supported by resilient pricing and cost control. Free cash flow generation remained robust, and the company ended the quarter with a strong cash position. Management noted that tariff impacts were less severe than anticipated, shaving only 20 basis points off gross margin versus the initial 30-50 basis point estimate.
- Service Revenue Momentum: Value-added services for the installed base are driving recurring growth, now at 10 consecutive quarters of increase.
- Geographic Balance: Four territories contributed meaningfully, with China revenue now expected to be moderately higher YoY, though percentage mix will decline due to advanced node investments elsewhere.
- Advanced Packaging Acceleration: This segment, including HBM (high bandwidth memory), is expanding as a share of the business, reflecting secular shifts in semiconductor design and manufacturing.
Overall, NOVA’s financials validate its positioning as a critical enabler of next-generation semiconductor manufacturing, with strong execution translating into above-model profitability and cash flow.
Executive Commentary
"Our product portfolio and value proposition, which support technological transitions and improvements in yield and productivity, resulted in record results in the logic foundry and advanced packaging segments."
Gabby Weissman, President and CEO
"Operating margins in the second quarter reached 30% on a GAAP basis and 34% on a non-GAAP basis, surpassing the upper range of our target model of 28% to 33%."
Guy Kisner, Chief Financial Officer
Strategic Positioning
1. Gate-All-Around Leadership
NOVA is capitalizing on the industry transition to gate-all-around (GAA) transistor architectures, a next-generation technology that enhances chip performance and power efficiency. The company is engaged with all four leading GAA customers and expects to reach $500 million in cumulative GAA revenue by the end of 2026. Management emphasized stable demand for GAA in the second half and reinforced that 2026 will be stronger than 2025, reflecting the multi-year nature of these investments.
2. Advanced Packaging and HBM Expansion
Advanced packaging, including high bandwidth memory (HBM), is becoming a larger revenue contributor, now estimated to exceed last year’s 15% of total sales. The chemical metrology division and the Nova Centronics platform are both gaining traction, with HBM accounting for roughly a third of advanced packaging business. This shift is directly tied to AI and data center demand, which require more sophisticated packaging and metrology solutions.
3. Materials Metrology and Lab-to-Fab Strategy
NOVA’s materials metrology portfolio, including the VeriFlex and XPS platforms, is positioned for long-term growth through the lab-to-fab strategy, which aims to move new measurement technologies from R&D into high-volume manufacturing. Recent innovations, such as active charge compensation for 3D NAND applications, are expanding the addressable market. Management highlighted strategic evaluations underway that could convert to revenue and establish these platforms as process tools of record at leading customers.
4. Service and Recurring Revenue
The service business continues to deliver consistent growth, driven by value-added offerings that improve productivity and extend the capabilities of the installed base. This recurring revenue stream enhances business resilience and reduces exposure to capital spending cycles.
5. Geographic and Customer Diversification
NOVA benefits from a diversified customer and geographic footprint, with no single region or client dominating results. While China is expected to see a nominal revenue increase, the company’s exposure is balanced by growth in advanced nodes and packaging in other regions.
Key Considerations
Q2 2025 underscored NOVA’s ability to capture secular growth drivers while maintaining operational discipline. The company’s diversified product and customer mix, combined with a focus on innovation, provides insulation from regional volatility and customer-specific CapEx swings.
Key Considerations:
- Gate-All-Around Roadmap Execution: Achieving the $500 million cumulative GAA revenue target hinges on continued adoption across all four leading customers.
- Advanced Packaging Proliferation: The shift toward HBM and complex packaging is expanding NOVA’s addressable market, but execution in scaling these platforms is critical.
- Lab-to-Fab Conversion Timing: The pace at which materials metrology tools transition from evaluation to high-volume manufacturing will determine medium-term growth.
- Margin Sensitivity to Mix: Sustaining gross margin at the upper end of the range will depend on product mix and the ongoing impact of tariffs and regional sales trends.
Risks
NOVA faces risks from customer CapEx reductions, especially among large integrated device manufacturers, as well as potential delays in the adoption of new metrology platforms. Regional volatility, particularly in China, and unforeseen shifts in semiconductor cycle timing could impact growth. While tariff impacts have been less severe than expected, any escalation in trade tensions or regulatory changes remains a watchpoint for margin and market access.
Forward Outlook
For Q3 2025, NOVA guided to:
- Revenue of $215 million to $227 million
- GAAP EPS of $1.77 to $1.97, Non-GAAP EPS of $2.02 to $2.22
For full-year 2025, management maintained a positive outlook, projecting continued outperformance versus WFE (wafer fab equipment) market growth.
- Gross margin expected at 57% (GAAP) and 59% (non-GAAP) for Q3
- Operating expenses to rise sequentially, reflecting ongoing R&D and integration investments
Management cited stable GAA demand, advanced packaging momentum, and a more favorable tariff environment as key factors supporting the outlook.
Takeaways
NOVA’s Q2 2025 results demonstrate the company’s ability to outperform the broader semiconductor capital equipment market by leveraging secular technology shifts and operational rigor.
- Margin and Revenue Outperformance: Gross and operating margins exceeded model ranges, reflecting strong execution and favorable mix.
- Strategic Platform Adoption: GAA, advanced packaging, and materials metrology are all seeing increased customer traction, validating NOVA’s innovation investments.
- Watch Lab-to-Fab and Regional Mix: Future upside will hinge on the pace of lab-to-fab tool adoption and continued balance in geographic and customer exposure.
Conclusion
NOVA delivered another record quarter with margin and revenue performance that outpaced both internal and industry benchmarks. The company’s diversified business model and focus on advanced technology inflections position it to capture multi-year growth as semiconductor complexity rises.
Industry Read-Through
NOVA’s results highlight accelerating demand for metrology and process control solutions as semiconductor manufacturers ramp advanced nodes, packaging, and memory architectures. The company’s outperformance relative to WFE market growth and peers underscores the value of diversified portfolios and exposure to secular AI and data center tailwinds. For the broader semiconductor equipment industry, NOVA’s momentum in GAA, HBM, and advanced packaging signals that capital intensity and complexity are rising even as regional and customer-specific CapEx cycles fluctuate. Investors should watch for similar dynamics among peers with strong exposure to logic, memory, and packaging innovation.