NOV Stock: Why Holding for Now Is the Right Move, Not Buying

NOV Inc. NOV is a global provider of engineered equipment, components and technology solutions used in oil and gas drilling, well construction and production operations. Through its broad portfolio and international footprint, the company supports energy producers in improving operational efficiency and reliability across the upstream value chain.

During the past three months, NOV’s shares delivered a 37.9% gain, outperforming both its direct industry peers and the wider oil and energy market. In comparison, the Oil and Gas-Mechanical and Equipment sub-industry (ZSI127M) rose 22.1%, while the broader oil and energy sector (ZS12M) advanced just 3%. This performance gap highlights NOV’s stronger market momentum and its ability to generate superior returns relative to the sub-industry and sector benchmarks.

Comparison of 3-Month Price Performance

What’s Fueling the Rise of NOV Stock?

Strategic Positioning in Long-Term Energy Shifts: NOV is strategically positioned to capitalize on two defining structural shifts in the global energy industry: the international expansion of unconventional shale development and the strong resurgence of deepwater offshore projects. The company's comprehensive suite of drilling, completion and production technologies is essential for both arenas, providing a multi-year growth runway as global customers invest in these lower marginal cost resources.

Record Backlog Providing Exceptional Visibility: The company's Energy Equipment segment has achieved a record-high backlog of $4.56 billion, fueled by a 141% book-to-bill ratio in the third quarter of 2025. This robust backlog, concentrated in offshore production equipment, offers strong revenue visibility well into 2026 and beyond. Management emphasizes the high quality and favorable pricing embedded in this backlog, which supports resilient margin performance despite near-term market softness.

Superior Free Cash Flow Generation and Conversion: The company demonstrates an outstanding ability to convert earnings into cash, achieving a 95% free cash flow conversion rate from adjusted EBITDA in the third quarter of 2025. This robust generation, supported by disciplined working capital management and strong project collections, provides the financial fuel for consistent shareholder returns and strategic investments without relying on external financing.

Favorable Mix Shift Toward Higher-Margin Offshore Production: The company is benefiting from a strategic pivot in customer investment toward offshore production equipment, which carries superior margins due to technological complexity and high barriers to entry. This favorable mix shift within the Energy Equipment segment is a primary driver behind its impressive streak of 13 consecutive quarters of year-over-year margin expansion.

Commercial Momentum in High-Growth Automation & Robotics: The company's automation and digital solutions, including the ATOM RTX robotic system and the NOVOS drilling automation platform, are gaining significant commercial traction. With a growing backlog and customers hailing the robotics system as transformative, NOV is establishing a leadership position in the high-value market of rig floor automation, which improves safety and efficiency.

What Might Affect NOV Stock’s Outlook?

Extended Timeline for Major Growth Cycle Convergence: While management paints an optimistic picture for the long term, the anticipated convergence of positive cycles in offshore drilling, offshore production and international shale development is not expected until the latter half of 2026 or even 2027. Investors must therefore endure a waiting period of several quarters before these powerful catalysts potentially align to drive a material acceleration in earnings.

Sharp Bottom-Line Contraction Outpacing Revenue Decline: NOV experienced a severe 68% year-over-year decline in net income during the third quarter of 2025, plummeting to $42 million. This dramatic drop significantly outpaces the modest 1% revenue decline, highlighting the negative operating leverage and margin compression that can rapidly impact profitability during an industry downturn.

Continued Challenges in the Offshore Wind Market: The company's Marine and Construction business continues to face headwinds from a challenged fixed-bottom offshore wind market, which has led to lower activity related to wind turbine installation vessels. Although a future award is possible, this segment is contending with the delayed and uncertain rollout of offshore wind projects, particularly in key markets.

Exposure to OPEC Policy and Delayed Final Investment Decisions: NOV's business, particularly for large offshore production systems, is exposed to the overhang of OPEC production and resulting commodity price volatility. This environment causes customers to postpone final investment decisions for major projects like Floating Production Storage and Offloading vessels, which has led to a downward revision in expected industry FID activity for 2025.

Delayed Recovery in Offshore Drilling Equipment Demand: The anticipated rebound in offshore drilling equipment orders remains postponed, with demand currently described as "soft" as drilling contractors preserve capital amid a sluggish market. While the outlook improves for late 2026, the recovery of this historically important and high-value product line for NOV is pushed further into the future, creating a near-term revenue gap.

Our Final Verdict for NOV Stock   

NOV is well-positioned to benefit from the global energy shifts toward unconventional shale development and deepwater offshore projects, supported by a record backlog of $4.56 billion that ensures strong revenue visibility into 2026. The company excels in free cash flow generation, with a 95% conversion rate from EBITDA, and is gaining momentum in automation and robotics, which could solidify its leadership in rig floor automation.

However, significant challenges remain, including a delayed convergence of growth catalysts until 2026 or 2027, a sharp decline in profitability and ongoing difficulties in the offshore wind market. Furthermore, a delayed recovery in offshore drilling equipment demand and exposure to OPEC-related volatility create a cautionary outlook. Considering the combination of strengths and risks, investors may want to hold off on adding this stock to their portfolios and wait for a more favorable entry point.

NOV's Zacks Rank & Key Picks

Currently, NOV has a Zacks Rank #3 (Hold).

Investors interested in the energy sector might look at some better-ranked stocks like Marathon Petroleum MPC, sporting a Zacks Rank #1 (Strong Buy), TechnipFMC FTI  and Oceaneering International OII, carrying a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Marathon Petroleum is valued at $52.96 billion. MPC is a leading American petroleum refining, marketing and transportation company, specializing in the production of gasoline, diesel and other refined products. Marathon Petroleum operates a vast network of refineries and retail locations, serving customers across the United States and internationally.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research