We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
ONTO Stock Up 126% in a Year: Is More Upside on the Horizon?
Read MoreHide Full Article
Key Takeaways
Onto Innovation posted record revenue and EPS, with backlog topping $1 billion for the first time.
Dragonfly G5 orders and advanced-packaging demand drove an 80% growth outlook for 2026.
ONTO faces valuation, cost, customer concentration and semiconductor-cycle risks after its 125.6% rally.
Onto Innovation, Inc. (ONTO - Free Report) has emerged as a key beneficiary of the AI semiconductor investment cycle. The stock has jumped 125.6% in a year at par with the Zacks Nanotechnology industry’s growth of 125.7%. The company has outpaced the Zacks Computer and Technology sector and the S&P 500 composite, which rose 26% and 15.5%, respectively.
Image Source: Zacks Investment Research
ONTO’s tough competitors include KLA Corporation (KLAC - Free Report) , Camtek Ltd (CAMT - Free Report) and Nova Ltd. (NVMI - Free Report) . KLAC has grown 81.5%, while CAMT and NVMI gained 41.6% and 19.7%, respectively, over the same period.
After the rally, investors are wondering whether the stock still has room to run or whether much of its AI-driven growth is already reflected in the valuation. The answer depends on whether Onto Innovation can convert the current surge in AI-related semiconductor spending into sustained revenue and earnings growth. Recent performance suggests that the underlying business momentum remains exceptionally strong, although valuation and semiconductor-cycle risks deserve attention.
Let’s find out.
Record Results Strengthen ONTO’s Bull Case
Onto Innovation's second-quarter results solidify its bullish case. The company generated record revenue of $343.1 million, up 35.3% year over year and nearly 18% sequentially. Non-GAAP earnings per share were $1.93 compared with $1.25 a year earlier. Advanced-nodes revenue increased 50% sequentially to a record level. Advanced packaging and specialty devices also reached all-time highs.
Even more encouraging was the company's backlog, which exceeded $1 billion for the first time. Management noted that 60-70% of the backlog is tied to the current year, and 30-40% to 2027, supporting sustained growth. Driven by robust demand and strong execution, Onto Innovation raised its second-half 2026 revenue, margin and EPS outlook. Building on a strong first half, it expects second-half revenue to grow more than 25%, with third-quarter revenue of $380–$400 million and further growth in the fourth quarter. At the midpoint, revenue guidance implies another sequential increase of roughly 14%, suggesting demand remains exceptionally strong.
Despite ongoing cost headwinds, including higher material, fuel and freight expenses, Onto Innovation expects gross margin to expand by another 50 basis points (bps) in each of the third and fourth quarters. Onto expects operating margin to improve 200 bps to 31.5-32.5% in the third quarter and exceed 33% by year-end. Per management, Onto Innovation is on track to deliver 350 bps of gross margin expansion and more than 750 bps of operating margin improvement in 2026, with further gains expected in 2027.
Launched in March 2026, Dragonfly G5 is designed for high-throughput inspection and metrology in advanced semiconductor packaging. It is becoming a key growth engine as AI-driven HBM and 2.5D logic packaging boost demand for advanced inspection and metrology. Dragonfly-driven inspection revenue rose 30% sequentially in the second quarter, while the new Dragonfly G5 adds higher resolution and sensitivity. ONTO also secured more than $200 million in Dragonfly orders from a single OSAT, mostly for 2027 delivery, alongside its HBM volume purchase agreement. Additionally, demand is expanding into 3D metrology, subsurface inspection and panel-level packaging.
Management raised its 2026 advanced-packaging growth outlook to at least 80%, up from more than 50% previously, with further growth expected in 2027. Nonetheless, Dragonfly is not Onto Innovation’s only opportunity. It is also gaining traction with Atlas G6, its optical critical-dimension metrology platform. Atlas G6 is expanding into transistor metrology at several nodes below 20 nanometers, where its smaller spot size and precision allow measurements in areas that were previously more difficult to address. Following logic adoption, Onto Innovation expects to ship multiple Atlas systems to a major DRAM customer in the second half of 2026 for next-generation memory devices.
Iris films and integrated metrology are also on track for record revenue in 2026, while management cited new integrated-metrology applications in logic as share-gain opportunities. The company now expects advanced-nodes revenue to grow more than 35% in 2026, up from the prior outlook of about 25%. Continued product adoption across DRAM, NAND and logic gives Onto Innovation multiple paths to expand wallet share as device structures become more complex.
Onto Innovation is broadening its process-control portfolio through partnerships and acquisitions. In April 2026, it agreed to acquire a 27% stake in Rigaku Holdings for about $710 million, gaining access to X-ray technology that complements its optical metrology tools for complex 3D structures and advanced packaging. Management estimates the semiconductor X-ray market at roughly $1 billion, with growth expected as chip architectures become more complex. Furthermore, it ended the second quarter with $1.88 billion in cash and short-term investments, maintaining financial flexibility for the Rigaku investment and other growth initiatives.
Image Source: Zacks Investment Research
However, Onto Innovation faces risks from trade and input-cost pressures, customer concentration and execution demand. Tariffs, freight, fuel surcharges and material costs could weigh on margins, while four customers accounted for 57.3% of first-half 2026 revenue and Taiwan and South Korea remained key markets, increasing exposure to customer spending shifts and regional disruptions. The company is also integrating acquisitions, with Semilab incurring a $4.5 million operating loss in second-quarter 2026, highlighting the potential near-term profitability impact of portfolio expansion. These risks become further relevant when valuation is elevated.
Valuation Concern
The major argument against chasing ONTO after its enormous rally is valuation. In terms of forward price/earnings, ONTO’s shares are trading at 30.23X, higher than the industry’s 5.83X.
Image Source: Zacks Investment Research
KLAC, CAMT and NVMI are trading at multiples of 36.23X, 39.6X and 32.81X, respectively.
Upbeat Estimate Revision Trend for ONTO
Earnings estimates for ONTO have moved up for both 2026 and 2027 over the past 60 days.
Image Source: Zacks Investment Research
Is Further Upside Ahead for ONTO?
Onto Innovation’s investment case remains compelling. Record revenue, a $1 billion-plus backlog, accelerating demand for advanced nodes, Dragonfly G5 adoption and an approximately 80% growth outlook for advanced packaging provide strong evidence that ONTO's business is entering an important growth phase. If Dragonfly becomes an industry standard across HBM and advanced-packaging production, Onto Innovation could establish a more durable revenue opportunity than investors previously expected. However, the stock's valuation means expectations are already high.
Continued earnings beats, upward guidance revisions and Dragonfly G5 order growth could support further upside. Conversely, any slowdown in AI-related semiconductor spending, or even a period when earnings fail to keep pace with the stock's valuation, could trigger a substantial pullback.
Currently flaunting a Zacks Rank #1 (Strong Buy), ONTO seems attractive for investors who believe AI infrastructure spending, HBM and advanced packaging will continue expanding. You can see the complete list of today’s Zacks #1 Rank stocks here.
View the Zacks #1 Rank List
Image: Bigstock
ONTO Stock Up 126% in a Year: Is More Upside on the Horizon?
Key Takeaways
Onto Innovation, Inc. (ONTO - Free Report) has emerged as a key beneficiary of the AI semiconductor investment cycle. The stock has jumped 125.6% in a year at par with the Zacks Nanotechnology industry’s growth of 125.7%. The company has outpaced the Zacks Computer and Technology sector and the S&P 500 composite, which rose 26% and 15.5%, respectively.
Image Source: Zacks Investment Research
ONTO’s tough competitors include KLA Corporation (KLAC - Free Report) , Camtek Ltd (CAMT - Free Report) and Nova Ltd. (NVMI - Free Report) . KLAC has grown 81.5%, while CAMT and NVMI gained 41.6% and 19.7%, respectively, over the same period.
After the rally, investors are wondering whether the stock still has room to run or whether much of its AI-driven growth is already reflected in the valuation. The answer depends on whether Onto Innovation can convert the current surge in AI-related semiconductor spending into sustained revenue and earnings growth. Recent performance suggests that the underlying business momentum remains exceptionally strong, although valuation and semiconductor-cycle risks deserve attention.
Let’s find out.
Record Results Strengthen ONTO’s Bull Case
Onto Innovation's second-quarter results solidify its bullish case. The company generated record revenue of $343.1 million, up 35.3% year over year and nearly 18% sequentially. Non-GAAP earnings per share were $1.93 compared with $1.25 a year earlier. Advanced-nodes revenue increased 50% sequentially to a record level. Advanced packaging and specialty devices also reached all-time highs.
Even more encouraging was the company's backlog, which exceeded $1 billion for the first time. Management noted that 60-70% of the backlog is tied to the current year, and 30-40% to 2027, supporting sustained growth. Driven by robust demand and strong execution, Onto Innovation raised its second-half 2026 revenue, margin and EPS outlook. Building on a strong first half, it expects second-half revenue to grow more than 25%, with third-quarter revenue of $380–$400 million and further growth in the fourth quarter. At the midpoint, revenue guidance implies another sequential increase of roughly 14%, suggesting demand remains exceptionally strong.
Despite ongoing cost headwinds, including higher material, fuel and freight expenses, Onto Innovation expects gross margin to expand by another 50 basis points (bps) in each of the third and fourth quarters. Onto expects operating margin to improve 200 bps to 31.5-32.5% in the third quarter and exceed 33% by year-end. Per management, Onto Innovation is on track to deliver 350 bps of gross margin expansion and more than 750 bps of operating margin improvement in 2026, with further gains expected in 2027.
Advanced Packaging & Dragonfly G5: ONTO’s Growth Catalysts
Launched in March 2026, Dragonfly G5 is designed for high-throughput inspection and metrology in advanced semiconductor packaging. It is becoming a key growth engine as AI-driven HBM and 2.5D logic packaging boost demand for advanced inspection and metrology. Dragonfly-driven inspection revenue rose 30% sequentially in the second quarter, while the new Dragonfly G5 adds higher resolution and sensitivity. ONTO also secured more than $200 million in Dragonfly orders from a single OSAT, mostly for 2027 delivery, alongside its HBM volume purchase agreement. Additionally, demand is expanding into 3D metrology, subsurface inspection and panel-level packaging.
Management raised its 2026 advanced-packaging growth outlook to at least 80%, up from more than 50% previously, with further growth expected in 2027. Nonetheless, Dragonfly is not Onto Innovation’s only opportunity. It is also gaining traction with Atlas G6, its optical critical-dimension metrology platform. Atlas G6 is expanding into transistor metrology at several nodes below 20 nanometers, where its smaller spot size and precision allow measurements in areas that were previously more difficult to address. Following logic adoption, Onto Innovation expects to ship multiple Atlas systems to a major DRAM customer in the second half of 2026 for next-generation memory devices.
Iris films and integrated metrology are also on track for record revenue in 2026, while management cited new integrated-metrology applications in logic as share-gain opportunities. The company now expects advanced-nodes revenue to grow more than 35% in 2026, up from the prior outlook of about 25%. Continued product adoption across DRAM, NAND and logic gives Onto Innovation multiple paths to expand wallet share as device structures become more complex.
Onto Innovation is broadening its process-control portfolio through partnerships and acquisitions. In April 2026, it agreed to acquire a 27% stake in Rigaku Holdings for about $710 million, gaining access to X-ray technology that complements its optical metrology tools for complex 3D structures and advanced packaging. Management estimates the semiconductor X-ray market at roughly $1 billion, with growth expected as chip architectures become more complex. Furthermore, it ended the second quarter with $1.88 billion in cash and short-term investments, maintaining financial flexibility for the Rigaku investment and other growth initiatives.
Image Source: Zacks Investment Research
However, Onto Innovation faces risks from trade and input-cost pressures, customer concentration and execution demand. Tariffs, freight, fuel surcharges and material costs could weigh on margins, while four customers accounted for 57.3% of first-half 2026 revenue and Taiwan and South Korea remained key markets, increasing exposure to customer spending shifts and regional disruptions. The company is also integrating acquisitions, with Semilab incurring a $4.5 million operating loss in second-quarter 2026, highlighting the potential near-term profitability impact of portfolio expansion. These risks become further relevant when valuation is elevated.
Valuation Concern
The major argument against chasing ONTO after its enormous rally is valuation. In terms of forward price/earnings, ONTO’s shares are trading at 30.23X, higher than the industry’s 5.83X.
Image Source: Zacks Investment Research
KLAC, CAMT and NVMI are trading at multiples of 36.23X, 39.6X and 32.81X, respectively.
Upbeat Estimate Revision Trend for ONTO
Earnings estimates for ONTO have moved up for both 2026 and 2027 over the past 60 days.
Image Source: Zacks Investment Research
Is Further Upside Ahead for ONTO?
Onto Innovation’s investment case remains compelling. Record revenue, a $1 billion-plus backlog, accelerating demand for advanced nodes, Dragonfly G5 adoption and an approximately 80% growth outlook for advanced packaging provide strong evidence that ONTO's business is entering an important growth phase. If Dragonfly becomes an industry standard across HBM and advanced-packaging production, Onto Innovation could establish a more durable revenue opportunity than investors previously expected. However, the stock's valuation means expectations are already high.
Continued earnings beats, upward guidance revisions and Dragonfly G5 order growth could support further upside. Conversely, any slowdown in AI-related semiconductor spending, or even a period when earnings fail to keep pace with the stock's valuation, could trigger a substantial pullback.
Currently flaunting a Zacks Rank #1 (Strong Buy), ONTO seems attractive for investors who believe AI infrastructure spending, HBM and advanced packaging will continue expanding. You can see the complete list of today’s Zacks #1 Rank stocks here.