NOV's Stock Surge Highlights Backlog Strength but Signals Caution on Near-Term Order Flow

What happened

NOV's stock has surged 37.9% in three months, driven by a record $4.56 billion backlog, offshore momentum, and automation gains, as highlighted in a recent news article. This aligns with DeepValue's BUY thesis, which emphasizes the company's multi-year backlog, skewed 92% international and 52% offshore, underpinning revenue visibility and margin resilience. However, DeepValue's report notes a 66% book-to-bill ratio in 2Q25, indicating near-term moderation in order intake and aftermarket demand, which tempers optimism. The news article advises holding rather than buying, reflecting prudent caution after the sharp price increase and cyclical industry risks, such as oil price softness and evolving US methane regulations. Overall, NOV's strategic positioning supports long-term potential, but investors must scrutinize backlog conversion and order trends to assess sustainability beyond the recent surge.

Implication

The 37.9% stock surge over three months likely reflects optimism about NOV's record backlog and offshore exposure, but it may have limited near-term upside potential given the elevated valuation. DeepValue's BUY thesis relies on sustained order intake above 1.0 book-to-bill and timely backlog conversion, which are at risk based on 2Q25's 66% ratio and softer aftermarket signals. Cyclical headwinds, including potential oil price softness into 2026 and regulatory changes from US methane rules, could delay customer capex and impact NOV's growth trajectory. The company's moat from its installed base and digital initiatives provides some downside protection, but margin expansion depends on executing higher-margin backlog and stabilizing aftermarket revenue. Therefore, while holding is justified for now, a shift to a more aggressive BUY stance would require evidence of improved order metrics and reduced cancellation risks in offshore projects.

Thesis delta

The DeepValue report maintains a BUY stance based on NOV's backlog visibility and offshore positioning, but the new article suggests holding due to the stock's rapid appreciation. No fundamental shift in the long-term thesis is warranted, as the backlog and market trends remain intact. However, the delta lies in heightened near-term caution, emphasizing that investors should wait for confirmation of order recovery and backlog quality before considering new purchases.