Veeco Instruments (VECO): A Contrarian Play in the AI-Driven Semiconductor Revolution

In an era where artificial intelligence (AI) and high-performance computing (HPC) are reshaping global industries, the semiconductor supply chain is undergoing a seismic shift. At the heart of this transformation lies a critical but often overlooked enabler: advanced packaging, gate-all-around (GAA) transistors, and high-bandwidth memory (HBM). Veeco Instruments (VECO), a mid-cap semiconductor equipment player, is uniquely positioned to benefit from these trends—yet its stock trades at a stark discount to industry peers. For contrarian investors, the question is not whether the AI-driven semiconductor revolution is real, but whether Veeco's undervaluation offers a compelling entry point before the market catches up.

Q1 2025 Results: Strong Revenue, Mixed Profitability

Veeco's Q1 2025 earnings report, released on May 7, 2025, underscored its strategic alignment with AI-driven growth. The company reported revenue of $167 million, exceeding the $174.34 million forecast, with its semiconductor segment accounting for 74% of total revenue. Sequential growth of 10% and year-over-year growth of 3% were driven by robust demand in advanced packaging and HBM applications. Non-GAAP operating income reached $24 million, and non-GAAP EPS came in at $0.37, above the high end of guidance but short of the $0.3918 forecast.

While the EPS miss weighed on the stock—VECO fell 1.56% in after-hours trading—this was a minor setback in the broader context of Veeco's long-term trajectory. Historically, VECO's stock has declined by an average of 0.29% following earnings releases since 2022, suggesting a pattern of modest post-earnings weakness. However, the 1.56% drop in this instance reflects a more pronounced reaction to the EPS shortfall, which could be an overreaction in a market that often exaggerates short-term misses for mid-cap players. The company ended the quarter with $353 million in cash and short-term investments, a strong liquidity buffer, and provided Q2 revenue guidance of $135–$165 million. Notably, the midpoint of the range assumes $15 million in delayed shipments to China due to tariff-related uncertainties, a temporary headwind rather than a structural issue.

Expanding Served Available Market (SAM): Advanced Packaging, GAA, and HBM

Veeco's core growth drivers are deeply tied to AI and HPC. Its wet processing systems, including the WaferStorm® and WaferEtch® platforms, are indispensable for advanced packaging techniques such as 3D stacking and hybrid bonding. These technologies are critical for HBM, which enables faster data transfer in AI accelerators and data centers. In 2024, Veeco secured over $50 million in orders for its wet processing systems, with deliveries expected in early 2025.

The company's laser annealing systems are also gaining traction in GAA transistor manufacturing, a next-generation architecture poised to replace FinFETs in leading-edge logic chips. Veeco has already secured orders from two “leading-edge logic customers” for GAA nodes, including a second NSA500 system from one client. Meanwhile, its partnerships with TSMC and HBM manufacturers like SK Hynix and Samsung are accelerating the transition to HBM4, with TSMC playing a pivotal role in producing the logic dies required for 3D-stacked HBM.

Strategic Undervaluation: A Contrarian Edge

Despite these tailwinds, Veeco trades at a significant discount to its peers. With a market cap of $2 billion, it ranks 14th in the semiconductor equipment industry, dwarfed by giants like Applied Materials ($168.79B) and Lam Research ($122.02B). However, its valuation metrics tell a different story. Veeco's P/E ratio of 19.83 is far lower than the industry average of 80.96, and its P/S ratio of 1.81 is a fraction of the 5.34 average. Even more striking is its P/B ratio of 1.50, compared to the industry's 7.12.

This undervaluation is not a reflection of weakness but rather a lack of recognition for Veeco's role in enabling next-generation semiconductor technologies. For context, Lam Research and KLA trade at premiums despite already being industry leaders. Veeco's small size and niche focus on advanced packaging and GAA mean it is often overlooked by investors chasing “blue-chip” equipment stocks. Yet its technology is now central to the AI infrastructure build-out, a $1.3 trillion market by 2030.

Key Partnerships: TSMC, Intel, and the HBM Ecosystem

Veeco's strategic partnerships further reinforce its growth potential. TSMC, the world's largest foundry, has designated Veeco as a key supplier for its advanced packaging roadmap, including CoWoS technology for stacking HBM with GPUs. The company's wet processing systems are also critical for SK Hynix's accelerated HBM4 production, which is expected to launch in 2025—a year ahead of initial forecasts.

On the logic side, Veeco's Aneal laser annealing systems have been awarded Intel's 2025 EPYC supplier award, recognizing its role in Intel's 14A/20A process nodes. These partnerships validate Veeco's position as a Tier 1 supplier in a supply chain where no chipmaker can afford to fall behind.

Short-Term Headwinds vs. Long-Term Tailwinds

Veeco's near-term challenges—such as tariff-related delays and a 35% stock price drop over six months—are manageable. The company's Q2 guidance accounts for $15 million in deferred shipments to China, and its gross margin of 42% remains stable. However, these issues are temporary and pale in comparison to the structural growth drivers ahead.

The AI-driven demand for advanced packaging and HBM is accelerating. Veeco projects its Advanced Packaging business to double in 2025 compared to 2024, while its laser annealing segment is on track for similar growth. Meanwhile, the company is expanding into new technologies like backside power delivery and IBD 300 systems, with potential shipments to leading customers by 2026.

Investment Thesis: Buy the Dip, Bet on the Future

For investors with a 3–5 year horizon, Veeco represents a rare combination of strategic undervaluation and secular growth. Its technology is mission-critical for AI and HBM, and its valuation is a fraction of peers like Lam Research and KLA. While the stock's 35% decline over six months may appear alarming, this drop has created an entry point for those who recognize the company's long-term potential.

The key risks include macroeconomic headwinds and trade policy shifts, but these are already priced into the stock. By contrast, the upside is vast: if Veeco's Advanced Packaging and GAA segments double in 2025 as expected, and its P/S ratio expands to match industry averages, the stock could see 150%+ returns over the next three years.

In a world where AI is the new electricity, Veeco is the unsung utility. For investors willing to look beyond the noise, this is a rare opportunity to own a piece of the future.

Final Call to Action:
The semiconductor revolution is here—and Veeco is at its front lines. With a compelling valuation, strong growth drivers, and a first-mover advantage in AI-critical technologies, VECO is a must-own for investors seeking to capitalize on the next decade of innovation. Buy the dip, and hold for the long haul.