Cognex (NASDAQ:CGNX) CFO Dennis Fehr said the company is seeing early signs of an improving factory automation environment after what he described as an unusually long downturn for machine vision, while also emphasizing a multi-pronged strategy built on market penetration, AI-enabled products, and operating efficiency.
Automation cycle: signs of recovery, but “cautious optimistic”
Fehr framed recent conditions as a sharp contrast to 2021, which he called an “extreme peak” during the COVID period, followed by a prolonged decline in 2022 through 2024. He said that three-year down cycle was atypical for machine vision, where down cycles have historically lasted one to two years.
Despite those signals, Fehr said the company is not yet ready to call a sustained acceleration. He described Cognex’s stance as “cautious optimistic,” noting the need for more consistent data points over time and highlighting seasonal and regional factors that can obscure early-year trends, including Lunar New Year impacts in Asia and typically slower starts in Europe.
2026 growth framework: baseline adjustments and drivers by end market
Fehr addressed how Cognex thinks about growth entering 2026, starting with what he called the appropriate baseline. He said 2025 revenue included a one-time event in the third quarter tied to a commercial partnership. While Cognex reported $994 million of revenue, he said excluding that item would imply about $982 million. He also said the company is exiting approximately $22 million of annualized revenue as part of portfolio optimization; because the timing is not fully from January 1, he used $17 million as an illustrative adjustment. That approach would place the company’s starting baseline at about $965 million, he said.
Against that baseline, Fehr referenced the company’s market commentary suggesting roughly mid-single-digit to high-single-digit growth, and provided an illustrative revenue range of roughly $1.015 billion to $1.035 billion if growth were 5% to 7%, while stressing that figure was not formal guidance.
On what drives growth, Fehr reiterated a framework discussed at an investor day: 10% to 11% through-cycle growth, consisting of about 4% underlying industrial and cyclical market growth and 6% to 7% from increased penetration. He said the mix between these drivers differs by vertical:
- Packaging: Fehr cited packaging as a key penetration-driven opportunity. He said Cognex grew high single digits in packaging in 2025 and expects mid- to high-single-digit growth in 2026, despite relatively low underlying market growth. He attributed penetration to launching AI-enabled machine vision applications and reaching customers Cognex has not historically served.
- Semiconductor: He characterized semiconductor as largely capacity-driven rather than penetration-driven because Cognex already has high penetration in the market. While he said the company feels “very strong” about the semiconductor cycle, he described uncertainty around timing—whether acceleration occurs early, mid-year, or later in 2026.
AI strategy and competitive positioning: “Physical AI” at the edge
Fehr said Cognex’s confidence in its longer-term penetration opportunity is tied to ongoing AI innovation. He highlighted the company’s OneVision offering, describing it as a way to bridge the gap between running AI on-device (edge learning) and using cloud resources for more complex tasks. In his description, OneVision allows a model on a device to be sent to a cloud-based “virtual training center” for deep learning retraining and then returned to the device so the application can run locally without needing the cloud.
He also addressed concerns that AI could lower barriers to entry, enabling competitors to offer simpler cameras “infused” with AI. Fehr said customers prioritize high accuracy and high speed for inline manufacturing applications and often prefer not to rely on cloud-based AI due to latency and cybersecurity concerns. He said customers are increasingly looking for “Physical AI,” which he described as specialized, manufacturing-specific models optimized to run on devices rather than large, generic models built for broad use cases. He said Cognex views AI as a net benefit and does not feel threatened.
Margins: path to a 25% EBITDA run rate and what changed in pricing
On profitability, Fehr said Cognex exited 2025 at 20.7% adjusted EBITDA margin excluding the commercial partnership item and is targeting a 25% EBITDA run rate by the end of 2026. He said the company’s plan assumes mid-single-digit growth and incorporates portfolio optimization and a $35 million to $40 million cost reduction on a run-rate basis by the end of the year.
He said the company feels confident in the mid-single-digit growth assumption, citing penetration opportunities and what he described as the early stages of a new industrial cycle. He also pointed to execution, saying Cognex has a programmatic approach with defined workstreams, KPIs, and ownership.
Discussing gross margin levers, Fehr said the shortfall in the “COGS productivity and pricing” bucket was driven mainly by pricing rather than tariffs. He referenced pricing pressure in China in late 2024, when Cognex chose to lower prices on older-generation products to defend market share against local competitors. He said the strategy maintained stable market share in 2025 and that the company exited 2025 with “pricing stability,” without further pricing pressure. Looking forward, he said the company believes there is opportunity in pricing over time, while noting the margin bridge is multi-year.
On operating expenses, he said cost actions are focused less on reducing growth investment and more on optimizing the operating model through digitalization, process improvements, and AI use in back-office functions and R&D. He also highlighted a salesforce transformation aimed at improving lead-to-order execution through data tools, KPI-driven management, and automation.
End market and regional commentary: logistics digestion, consumer electronics tailwinds, and Asia strength
Fehr said logistics is a long-term area of excitement due to low penetration and a large automation opportunity. He noted the segment returned to growth earliest, beginning in 2024, and finished 2025 with eight consecutive quarters of double-digit year-over-year growth. For 2026, Cognex expects moderation—mid- to high-single-digit growth—citing tougher comparisons and potential digestion after two strong years, while maintaining optimism over a multi-year cycle.
For consumer electronics, Fehr said 2025 marked the first return to growth after three years of down or flat performance, driven by supply chain shifts moving device assembly outside China and broad-based customer demand. He said supply chain shifts could continue for two to three more years and also cited recovery in end-consumer demand tied to a refresh cycle after COVID-era purchases, while acknowledging the segment’s inherent cyclicality.
He described packaging as a steadier, less cyclical market that Cognex historically emphasized less, but that the current management team is prioritizing both for penetration and for reducing volatility.
On automotive, Fehr said the market has been challenging, with a double-digit decline in 2024 and a high single-digit decline in 2025. He said Cognex called a bottom at the end of 2025 based on sequential stabilization, but he remained cautious, particularly in Europe. He also pointed to an AI-enabled 3D product introduced in late 2024, which he said can increase share of wallet in automotive.
Regionally, Fehr said the Americas had a strong 2025 largely driven by warehouse automation, but growth could be lower in 2026 as the company moderated its view of that market. He said reporting dynamics also shifted because a large consumer electronics customer placed some purchase orders through European entities in 2025 even though products still went to China and Asia; he said that skew likely overstated Europe’s growth and understated China’s. He said China looked “pretty good” toward the end of 2025 and into 2026, and he expressed a “big positive view” on Asia and China overall, while describing Europe as “a little bit tentative,” particularly due to potential automotive headwinds.
Fehr also said Cognex continues to see strong free cash flow conversion and a solid balance sheet. On M&A, he said acquisitions are optional and would only be pursued if they make strategic and financial sense, noting a shift in mindset from primarily tech bolt-ons toward a greater willingness to consider acquiring revenue and focusing on bottom-line profitability and sales synergies.
In closing, Fehr said AI is the top innovation shaping Cognex over the next five years, both as a driver of machine vision penetration and as an enabler of margin expansion.
About Cognex (NASDAQ:CGNX)
Cognex Corporation is a leading provider of machine vision systems, software, sensors and industrial barcode readers used to automate manufacturing, logistics and distribution processes. The company designs and develops vision-based products that help manufacturers and logistics operators inspect, identify and guide parts, assemblies and packaged goods in real time. Its solutions are applied in a broad range of industries, including automotive, electronics, semiconductor, pharmaceutical, food and beverage, and general manufacturing.
The company’s product portfolio includes stand-alone vision systems, vision sensors and deep learning-based software platforms that enable automated inspection, quality control and traceability.
