On Wednesday, Oppenheimer initiated coverage on Onto Innovation Inc. (NYSE: ONTO), a provider of yield enhancement tools for semiconductor manufacturing, with a positive outlook. The firm has set a price target of $260 for the stock, highlighting the company’s role as a pivotal enabler of artificial intelligence and its promising growth prospects.
Oppenheimer believes Onto Innovation is positioned for substantial growth due to its involvement with major Nvidia suppliers, TSMC and SK Hynix. The company’s tools are critical for advanced packaging and high-bandwidth memory (HBM) applications, both of which are rapidly expanding sectors.
The transition within the semiconductor industry to gate-all-around (GAA) architecture is expected to create significant growth opportunities for Onto Innovation. According to Oppenheimer, this shift could result in more than a 50% increase in process control opportunities, which would be advantageous for the company.
Onto Innovation’s market share in the planar films metrology sector is also growing quickly. This sector, valued at approximately $1 billion, represents a duopoly where the firm’s success further strengthens its competitive position.
Oppenheimer also noted Onto Innovation’s relatively low exposure to business risks in China, where it derives only 10% of its revenues. This is in contrast to other larger wafer fab equipment makers that have up to 40% revenue exposure in China. Given the ongoing US-China tensions, particularly in the semiconductor industry, Onto Innovation’s reduced exposure is seen as a significant advantage that could support a higher valuation.
In recent developments, Onto Innovation reported a 15% year-over-year increase in revenues, driven by high demand across various sectors. Needham upgraded Onto Innovation from Hold to Buy, setting a price target of $245.
Benchmark also raised its price target for Onto Innovation from $180 to $230, maintaining a Buy rating due to a robust sales outlook. The firm projects a 23% year-over-year growth in earnings, reaching $5.98 per diluted share by 2025.
Onto Innovation has launched its Packaging Applications Center of Excellence (PACE) in Wilmington, Massachusetts, focusing on panel-level packaging advancements to support 2.5D and 3D chiplet architectures and AI packages. This center will utilize Onto’s expertise in lithography, plating, thin film deposition, and laser processes.
Additionally, the company appointed Dr. Stephen Schwartz to its board of directors, who brings over 25 years of experience in high technology leadership. Onto Innovation also introduced a new suite of products, including the JetStep X500 lithography system and the Firefly G3 inspection system, aimed at supporting the industry’s move to glass core panels for advanced IC substrates and panel-level packaging.
These steps highlight Onto Innovation’s commitment to advancing semiconductor packaging technologies and enhancing device performance and efficiency.
InvestingPro Insights
Onto Innovation Inc. (NYSE: ONTO) is receiving increased attention from analysts because of its promising growth trajectory in the semiconductor industry. Key metrics from InvestingPro provide insight into the company’s financial health. With a market capitalization of $9.87 billion, the company reflects strong investor confidence and market valuation.
Despite having high earnings multiples, with a P/E Ratio of 58.95 and an adjusted P/E for the last twelve months at 60.28 as of Q2 2024, Onto Innovation’s financial strength is evident from its considerable gross profit margin of 51.33% and a strong operating income margin of 16.79% for the same period.
InvestingPro Tips indicate that Onto Innovation has a stronger cash position than debt, showcasing its financial resilience. Furthermore, the company has received upward earnings revisions from three analysts for the upcoming period, suggesting positive future performance expectations. Investors can explore over 12 additional InvestingPro Tips for more in-depth insights into Onto Innovation’s investment potential.
With a year-to-date price total return of 30.37%, Onto Innovation’s stock performance indicates a high return over the last year, signaling a favorable market response to the company’s strategic initiatives and growth trajectory. These financial insights complement Oppenheimer’s optimistic outlook, portraying Onto Innovation as a strategically well-placed and financially robust company.
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