Why Camtek Plunged Today

Shares of semiconductor equipment company Camtek (NASDAQ: CAMT) plunged on Tuesday, falling 16.8% as of 2:44 p.m. EDT.

Camtek reported earnings this morning, beating analyst expectations. The company even guided to better-than-expected second-quarter numbers and forecast an acceleration in revenue in the second half of the year.

Still, semiconductor stocks were down significantly across the board today, as today's inflation figures triggered a massive rotation out of the sector after a huge run.

Camtek beats, but that's besides the point

In the first quarter, Camtek grew revenue 2.6% to $121.7 million, while adjusted (non-GAAP) earnings per share were down 9% from the prior-year quarter.

Despite the meager growth, both numbers beat analyst expectations, and second-quarter revenue guidance of $129 million to $131 million was also above analyst estimates.

Camtek sells metrology equipment that scans chipsets for defects at the advanced packaging phase. Advanced packaging is becoming increasingly important as chipmakers adopt more chiplet-based architectures. So, while last quarter's meager growth may have underwhelmed, this is due to the lumpy timing of orders from large chipmakers. Reassuringly, Camtek management projected second-half revenue at least 25% higher than the first half.

Still, the beat-and-raise wasn't enough for investors on a day when the semiconductor sector got hammered. Semiconductor stocks, Camtek included, have been on a massive run this year. Camtek's stock had been up 80% on the year going into today's earnings report.

Thus, when today's Consumer Price Index (CPI) came in hotter than expected, it may have given investors the excuse to take profits across virtually all chip stocks. To defy the selling pressure, Camtek would have had to outperform by a huge margin. Apparently, the mere mild beat wasn't enough.

Image source: Getty Images.

Camtek belongs in an AI basket

AI-related chip stocks have had a tremendous run; thus, they're either overvalued if the AI investment cycle slows, or they could very well continue if the AI build-out lasts several more years.

If you believe in the latter, Camtek may be a good addition to an AI stock basket, especially after today's sell-off. Just be aware that the stock still trades around 50 times this year's earnings estimates, which means it could fall further on any more hiccups in the growth story.

Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.