Amidst Industry Turbulence, Veeco Instruments Still Seeing Solid Demand

I don't think it's much of a stretch to say that the tech market has been volatile over the past six months or so, and smaller-cap names have generally fared a little worse than their larger brethren. In that context, Veeco Instruments' (NASDAQ:VECO) 14% decline since my last update (versus an 18% decline at Applied Materials (AMAT), 12% at ASML (ASML), and 10% at Lam Research (LRCX)) isn't too awful, though this is a tough stock to benchmark and comparisons to these much larger tool companies are of limited value.

Investor sentiment for the chip space may not be what it was, but the reality is that fabs are still looking to spend large sums to increase capacity, particularly at leading-edge nodes. Moreover, Veeco continues to have attractive leverage to emerging opportunities like extreme ultraviolet (or EUV) lithography, multiple gallium-based substrates, and advanced tool/technology adoption in areas like microLEDs, power semis, and storage.

I'm a little less bullish on the near-term margin outlook for Veeco given supply-chain and mix pressures, and that does take a toll on my cash flow-based and margin-based fair value estimates, but I think the overall outlook for this under-followed equipment supplier is still positive and it's a name worth considering.

 

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Amidst Industry Turbulence, Veeco Instruments Still Seeing Solid Demand