Automation, Defense And Additive Manufacturing Will Boost Laser Adoption

Key Takeaways

• Defense segment momentum and deep technology integration are likely to drive outsized growth, margin improvement, and long-term outperformance beyond current analyst expectations.
  
• Expanding industrial automation and next-generation laser adoption position nLIGHT for commercial rebound, market share gains, and sustained earnings growth through proprietary innovation.
  
• Heavy reliance on defense contracts, weak commercial demand, rising costs, and intensified low-cost competition heighten risks to revenue growth, profitability, and margin stability.

Catalysts

Designs, develops, manufactures, and sells semiconductor and fiber lasers for industrial, microfabrication, and aerospace and defense applications.

• Analyst consensus expects the defense segment to be a major growth driver due to programs like HELSI-2, but is likely underestimating both the magnitude and duration of this market expansion-nLIGHT's 150% year-over-year defense product growth, growing international demand (e.g., Israeli Iron Beam), and deepening U.S. defense alignments position the company for outperformance in revenue and multi-year backlog conversion, well beyond current projections.
  
• While analysts broadly agree the large and growing backlog supports forward revenue, they may be undervaluing both the program diversity and the high level of vertical integration; nLIGHT's unique full-technology-stack approach in high-energy lasers and laser sensing, combined with expanding classified and international programs, sets up sustained gross margin improvement and stronger-than-expected operating leverage.
  
• The accelerating transition to advanced automation and smart manufacturing globally is poised to boost demand for nLIGHT's lasers in robotics, automotive, electronics, and additive manufacturing, which could drive a sharp rebound in commercial revenue and materially lift long-term revenue CAGR once broader industrial cycles recover.
  
• Ongoing investments in proprietary R&D and intellectual property are enhancing nLIGHT's pricing power and fostering next-generation laser products for both semiconductor fabrication and microelectronics-sectors experiencing robust, multi-year growth-which is set to support higher product margins and long-run earnings expansion.
  
• Rising adoption of energy-efficient and high-precision fiber and semiconductor lasers across auto, medical, and aerospace sectors is creating robust new addressable markets, and as legacy CO₂ lasers are phased out, nLIGHT's position as a technology leader should translate into market share gains and meaningful increases in both revenue and adjusted EBITDA.

nLIGHT Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on nLIGHT compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming nLIGHT's revenue will grow by 12.4% annually over the next 3 years.
• Even the bullish analysts are not forecasting that nLIGHT will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate nLIGHT's profit margin will increase from -26.8% to the average US Electronic industry of 8.8% in 3 years.
• If nLIGHT's profit margin were to converge on the industry average, you could expect earnings to reach $25.8 million (and earnings per share of $0.49) by about August 2028, up from $-55.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 62.3x on those 2028 earnings, up from -17.6x today. This future PE is greater than the current PE for the US Electronic industry at 23.0x.
• Analysts expect the number of shares outstanding to grow by 2.73% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.15%, as per the Simply Wall St company report.

nLIGHT Future Earnings Per Share Growth

Risks

• Heavy reliance on defense sector revenues, which now make up over 63 percent of total sales and are projected to be the driver of near-term growth, increases vulnerability to shifts in government budgets, contract delays, or loss of key defense programs, and could introduce volatility in revenues and earnings if large orders are not renewed or such funding priorities change.
  
• Ongoing challenges and long-term weakness in commercial, industrial, and microfabrication markets, combined with a decline in industrial laser demand, expose nLIGHT to secular risks of alternative manufacturing technologies and global investment slowdowns, threatening future revenue streams outside of defense and potentially impacting profitability.
  
• Margin compression risk remains as global tariff uncertainty, input cost pressures, and the potential inability to fully pass on costs to customers-particularly in industrial products-could erode gross margins and reduce net earnings, especially if tariffs remain elevated or are further increased.
  
• Intensifying competition from lower-cost East Asian manufacturers, coupled with nLIGHT's focus in U.S. and Europe where growth is described as more limited, could constrain market share expansion, exert price pressure, and negatively impact both revenue growth and long-term net margins.
  
• High and growing R&D and operating expenses needed to sustain technology leadership, together with rising inventory and the need for increased working capital (evidenced by drawing on a credit facility despite substantial cash reserves), could pressure net income if revenue growth does not keep pace with these elevated cost structures.

Valuation

• The assumed bullish price target for nLIGHT is $24.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of nLIGHT's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $12.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $291.7 million, earnings will come to $25.8 million, and it would be trading on a PE ratio of 62.3x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $19.67, the bullish analyst price target of $24.0 is 18.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.