nLIGHT Blasts Off in Defense, But Can It Ignite the Manufacturing Sector?

The defense industry is on fire—literally. High-power lasers, once the stuff of sci-fi, are now critical to modern warfare, and nLIGHT (NASDAQ: LASR) is at the center of this explosive shift. With geopolitical tensions soaring and industrial automation racing forward, today's earnings preview offers a stark lesson: defense is the rocket fuel here, but manufacturing remains the unlit fuse. Let's break it down.

Defense: The Thrusters That Could Take This Stock to Orbit

nLIGHT's defense segment is its North Star, and for good reason. The company's Q2 guidance points to $38 million in product revenue, with aerospace and defense (A&D) leading the charge. The crown jewel? The Healthy II program, a $171 million U.S. DoD contract for a 1-megawatt laser system. Think of it as the “laser cannon” for future battleships—a project so critical it's already driving 50%+ year-over-year A&D revenue growth.

Add to that the Army's DEM SHORD program (a 50-kW laser for air defense) and partnerships like Israel's Iron Beam, and you've got a pipeline that's not just firing blanks. CEO Scott Keeney isn't shy about nLIGHT's edge: vertical integration lets them build lasers faster and cheaper than competitors. This isn't just tech—it's national security infrastructure, and Uncle Sam is writing blank checks.

The numbers back this up. nLIGHT's Q1 defense revenue hit $32.7 million (63% of total sales), with gross margins on defense products hitting 33.5%—a staggering premium over its struggling commercial segments. The company now projects at least 25% YoY A&D growth in 2025, fueled by programs like the Golden Dome initiative, which aims to stop missiles with non-kinetic (read: laser) weapons.

Manufacturing: The Unlit Fuse—Beware the Tariff Backdraft

Now, let's talk about the other side of this equation: manufacturing. Here's where the fireworks turn to smoke. nLIGHT's industrial and microfabrication divisions are stuck in a rut, dragged down by weak demand and rising tariffs. Q1 saw no recovery in industrial sales, and metal additive manufacturing—the “future of aerospace”—isn't yet delivering.

The culprit? Trade wars and overstocking. To dodge tariffs, nLIGHT moved production from Shanghai to Thailand and U.S. facilities, a smart move but one that's cranking up inventory to $43.8 million. That's a red flag: overstocking signals either overly optimistic demand or a defensive hedge. If demand doesn't materialize, those warehouses could become albatrosses.

Meanwhile, gross margins for non-defense segments are under siege. Tariffs on materials could squeeze margins to 8% in advanced development, while product margins (already weaker at ~23% without tariff benefits) face headwinds. The takeaway? Don't bet on manufacturing turning around anytime soon.

The Bottom Line: Buy the Defense Play, But Watch the Ignition

nLIGHT's Q2 earnings are a masterclass in divergent trajectories. Defense is booming—so much so that the company's Q2 revenue midpoint ($56 million) could push it to breakeven on EBITDA, a major milestone. But the manufacturing drag and tariff risks mean this isn't a “buy everything” story.

Action Alert: - Bullish on Defense: If nLIGHT hits its A&D targets and wins new Golden Dome contracts, this stock could blast past its 52-week high of $25. - Cautious on Manufacturing: Until industrial demand rebounds (and tariffs stabilize), this segment is a fiscal anchor. - Key Watch Points: - Q2 A&D revenue growth vs. guidance. - Inventory levels and cash burn (Q2 EBITDA is projected between -$4M and $1M). - Progress on the Healthy II program's component deliveries.

Final Take: nLIGHT is a geopolitical play first, an industrial play second. Buy it for the defense boom, but set a stop-loss below $15 if manufacturing sags further. This isn't a “set it and forget it” stock—monitor those laser contracts, because they're the only thing separating nLIGHT from becoming just another overstocked tech also-ran.

Disclosure: This article is for informational purposes only. Always do your own research before investing.