Executive Summary / Key Takeaways

• AI-Driven Growth Engine: Camtek is strategically positioned at the forefront of the high-performance computing (HPC) and advanced packaging markets, which are experiencing rapid expansion due to the proliferation of AI applications. This segment consistently contributes 45-50% of total revenue and is expected to remain the primary growth driver.
• Technological Edge with New Platforms: The successful launch and rapid adoption of the Eagle G5 and Hawk inspection and metrology systems are critical differentiators. These platforms offer superior capabilities for advanced packaging technologies, including hybrid bonding and fine-pitch micro-bumps, and are projected to generate approximately 30% of total revenue in 2025, with a larger contribution anticipated in 2026.
• Robust Financial Performance and Outlook: Camtek delivered record revenues of $123.3 million in Q2 2025, achieving an annualized run rate of $0.5 billion, a significant milestone. The company maintains strong gross margins around 52% and expects continued growth, with Q3 2025 revenue guided at approximately $125 million.
• Strategic Capital Management: A recent $500 million offering of 0% Convertible Senior Notes due 2030 has enhanced liquidity, with proceeds used to repurchase existing notes and fund general corporate purposes, including potential acquisitions and R&D, underscoring prudent financial stewardship.
• Competitive Resilience and Market Expansion: Despite intense competition from larger players like KLA Corporation (KLAC) and Applied Materials (AMAT), Camtek's agility, specialized technology, and strong relationships with OSATs enable it to gain market share and expand its total addressable market, particularly as CoWoS-like production shifts towards OSATs.

The Foundation of Precision: Camtek's Role in the Semiconductor Revolution

Camtek Ltd. (NASDAQ:CAMT), established in 1987, has evolved into a pivotal provider of high-precision inspection and metrology solutions for the global semiconductor industry. The company's core mission centers on developing, manufacturing, and supporting advanced systems that enable semiconductor manufacturers, outsourced semiconductor assembly and test (OSAT) providers, and integrated device manufacturers (IDMs) to enhance manufacturing yields and reduce costs. This focus is particularly critical in the rapidly expanding high-performance computing (HPC) and advanced packaging segments, which are the bedrock of the artificial intelligence (AI) revolution.

Camtek's strategic journey has been marked by a keen anticipation of technological shifts. The company's early pivot from printed circuit board (PCB) inspection to semiconductors laid the groundwork for its current leadership. This foresight is evident in its robust product portfolio and its ability to consistently capture a significant share of the most demanding market segments, including advanced interconnect packaging, heterogeneous integration, High Bandwidth Memory (HBM), CMOS image sensors, compound semiconductors, MEMS, and RF.

Technological Edge: Powering the Next Generation of AI Hardware

At the heart of Camtek's investment thesis lies its differentiated technology, which provides tangible and quantifiable benefits to its customers. The company's core offerings, such as the Eagle-i and Eagle-AP systems, deliver superior 2D and 3D inspection and metrology capabilities on a single platform, addressing the complex demands of advanced packaging. This integrated approach translates into enhanced operational efficiency and accuracy for manufacturers.

Camtek's significant strategic investments in research and development have culminated in the launch of its cutting-edge Hawk and Eagle G5 systems, which are instrumental in addressing emerging opportunities in advanced packaging for AI applications.

• The Hawk Platform: Engineered for high-end applications, the Hawk delivers breakthrough performance with significantly higher throughput compared to existing systems. It is capable of detecting defects down to 100 nanometers and measuring hundreds of millions of micro-bumps at pitches lower than 10 microns. This capability is crucial for advanced packaging technologies like hybrid bonding and very fine-pitch micro-bumps. The Hawk's ability to address these difficult applications provides a clear path for customers looking to support future product roadmaps, ensuring high-quality components enter the HPC module assembly line.
• The Eagle G5 System: As the fifth generation of the Eagle system, the G5 offers superior wafer throughput coupled with improved optical resolution. It is "much faster" than previous Eagle models and provides enhanced optics for detecting defects that were previously unaddressable. The Eagle G5 also incorporates automatic defect classification (ADC) for color images, utilizing deep learning techniques to reduce manual verification.

These new platforms are not merely incremental improvements; they are designed to expand Camtek's total available market. The Hawk, in particular, is expected to increase the total addressable market by "at least $200 million and potentially more" by opening new applications beyond the capabilities of the Eagle product line. The successful adoption of these new models is evident in their projected contribution of approximately 30% of total revenue in 2025, with an even larger contribution anticipated for 2026. Furthermore, the Hawk's higher price tag is expected to contribute positively to gross margins.

Beyond inspection, Camtek's MicroProf metrology system, acquired through the FRT acquisition, has been successfully adopted by a Tier 1 customer for multiple metrology applications, with over 30 systems already installed and operating in full-scale production environments. This demonstrates the breadth of Camtek's technological leadership across both inspection and metrology.

Financial Strength and Strategic Capital Deployment

Camtek's technological prowess translates directly into robust financial performance. The company concluded the second quarter of 2025 with record revenues of $123.3 million, reflecting over 20% year-over-year growth. This performance positions Camtek to achieve an annualized run rate of $0.5 billion in Q3 2025, a significant milestone. For the full year 2024, Camtek reported record revenues of $429 million, a 36% increase year-over-year, with operating income reaching $130 million, a 56% improvement over 2023.

Profitability metrics remain strong, with gross margins consistently around 52% (51.9% in Q2 2025) and operating margins at 30.3% in Q2 2025. Net income for Q2 2025 was $38.8 million, or $0.79 per diluted share.

The company's financial health is further underscored by its substantial cash position, with cash, cash equivalents, and marketable securities totaling $544 million as of June 30, 2025. Camtek also generated over $23 million in cash from operations in Q2 2025.

In a strategic move to optimize its capital structure and fund future growth, Camtek recently closed an offering of $500 million aggregate principal amount of 0% Convertible Senior Notes due 2030. Approximately $267 million of the net proceeds were used to repurchase $167.1 million aggregate principal amount of existing notes due 2026, effectively extending its debt maturity profile. The remaining net proceeds are earmarked for general corporate purposes, including potential acquisitions, working capital, capital expenditures, and research and development. This demonstrates a proactive approach to financial management, ensuring resources are available to capitalize on market opportunities.

Competitive Landscape and Strategic Positioning

Camtek operates in a highly competitive semiconductor equipment market, facing established players such as KLA Corporation (KLAC), Applied Materials (AMAT), ASML Holding (ASML), and Onto Innovation (ONTO). While these larger competitors often benefit from greater scale and diversified portfolios, Camtek distinguishes itself through its agility and specialized focus on advanced packaging inspection and metrology.

Camtek's management emphasizes that its "unique combination of technology scale... and flexibility are key reasons why many customers choose to work with us over larger competitors who often are slower to respond". This agility allows Camtek to rapidly develop and deploy solutions for emerging technologies, such as hybrid bonding and fine-pitch micro-bumps, where its new Hawk and Eagle G5 systems offer competitive advantages. For instance, the Hawk's ability to detect defects down to 150 nanometers and its high throughput are critical for the demanding requirements of HBM4 and hybrid bonding applications.

A significant trend playing to Camtek's advantage is the observed shift in CoWoS-like production towards Outsourced Semiconductor Assembly and Test (OSAT) providers. Camtek has a strong market position with OSATs, and this transition is becoming a significant business, contributing to a "significant number of orders" for these applications. This strategic alignment with OSATs, combined with its strong relationships with over 200 active customers globally, provides Camtek with a diverse and resilient customer base.

While larger competitors like KLA have made inroads in 2.5D and HBM opportunities, Camtek has "demonstrated that our equipment is highly competitive" and is "very well positioned to meet the specific requirements of this unique market". The company's focus on 2D inspection, which constitutes a larger portion of its overall business than 3D metrology, further strengthens its competitive stance in this critical area.

Outlook and Growth Trajectory

Camtek's outlook remains highly optimistic, driven by the relentless demand for high-performance computing in AI applications. The advanced packaging market supporting AI is expected to grow at an "exceptionally rapid rate over the next few years," fueled by new packaging technologies like hybrid bonding and increasingly dense micro-bumps. Management anticipates Q3 2025 revenue to be approximately $125 million, representing an annualized run rate of $0.5 billion, and expects "healthy orders flow and pipeline into the fourth quarter".

Looking further ahead, 2025 is projected to be "a year of growth well beyond the 5% WFE growth estimates," with HPC expected to contribute at least 50% of the business in the first half of 2025. The company anticipates that 2026 will be "another growth year" for Camtek, assuming a positive market environment. The transition to HBM4, with its requirements for more layers and increased memory content, is expected to drive demand for new tools and more wafer scanning, presenting a positive opportunity for Camtek. Initial equipment shipments for HBM4 are expected to commence in early 2026.

Camtek is also poised to benefit from the broader penetration of AI capabilities into edge computing devices such as automotive, robotics, PCs, and mobile phones, which will necessitate powerful dedicated hardware and advanced packaging solutions. While the hybrid bonding market is still in its early stages, with high-volume production anticipated around 2027-2028, Camtek is already supplying machines to pilot lines and sees it as a significant future opportunity.

The company's manufacturing capacity is robust, capable of supporting over $600 million in revenue, with an additional 10% capacity being added in Europe next year, bringing total capacity closer to $660 million. This expansion ensures Camtek is well-prepared to meet anticipated demand.

Risks and Considerations

Despite the compelling growth narrative, investors should consider several factors. Geopolitical uncertainties and tariff policies, while not directly impacting Camtek materially due to its diversified manufacturing and sales footprint, could still affect the global economy and overall demand for electronic components. The company experienced "exceptionally high shipping expenses" exceeding $0.5 million in Q2 2025 due to regional conflict, though these have since normalized.

Management has identified a bottleneck in the HPC market related to the "missing capacity of 2.5D substrates," which could temporarily constrain growth, although this is expected to be released in 2025. The complexity of new technologies like hybrid bonding, characterized by "very low yield" and high risk, means their widespread adoption will be gradual and initially focused on very high-end applications. Furthermore, the R&D involved in evolving CoWoS technologies, aiming for improved efficiency and yield, introduces a degree of uncertainty regarding the timeline for process maturity and high-volume production.

Conclusion

Camtek Ltd. stands as a compelling investment in the burgeoning semiconductor equipment sector, particularly within the high-growth advanced packaging and HPC markets. The company's history of strategic evolution, coupled with its relentless focus on technological innovation, has cemented its position as a critical enabler of the AI era. With record financial performance, a robust balance sheet, and a clear roadmap for growth driven by its cutting-edge Hawk and Eagle G5 platforms, Camtek is well-equipped to capitalize on the increasing complexity and demand for advanced semiconductor manufacturing.

The company's agility and specialized expertise allow it to effectively compete against larger rivals, particularly through its strong relationships with OSATs and its ability to deliver superior inspection and metrology solutions for next-generation technologies like HBM4 and hybrid bonding. While macroeconomic and technological risks persist, Camtek's proactive capital management, expanding manufacturing capacity, and diversified customer base provide a strong foundation. For discerning investors, Camtek represents a high-conviction opportunity to participate in the foundational growth of AI, underpinned by its sustained innovation and expanding market leadership.