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Is ONTO Worth Buying as Earnings Surge but Valuation Stays Elevated?
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Key Takeaways
Onto Innovation's Q3 revenues jumped 87.8% to $409.7M, while non-GAAP earnings surged 165.2% to $2.44.
ONTO expects advanced-packaging revenue growth above 80% in 2026, with gross margins set to improve further.
ONTO's 8.2X EV/sales premium and 9.7% return on invested capital temper its strong earnings growth outlook.
Onto Innovation Inc. (ONTO - Free Report) is delivering faster earnings growth, broader AI-related demand and improving profitability. The question is whether those gains are sufficient to offset a valuation that remains above its own historical norm.
Backlog, estimate growth and margin expansion support the bull case. Still, capital returns have softened, acquired businesses add execution demands and the stock’s valuation leaves less room for disappointment.
ONTO’s Earnings Growth Has Accelerated Sharply
Third-quarter revenues rose 87.8% year over year to a record $409.7 million. Non-GAAP operating income increased 189.8% to $133.5 million, while non-GAAP earnings reached $2.44 per share, up 165.2%.
Image Source: Zacks Investment Research
The earnings outlook remains constructive. The Zacks Consensus Estimate calls for 2026 earnings of $8.25 per share and 2027 earnings of $12.44, implying a 50.8% increase next year. The estimate for 2026 earnings has also moved 2.7% higher over the past four weeks.
Onto’s AI Exposure Is Broadening Across Products
Dragonfly G5 adoption has expanded to more than 10 customers across high-bandwidth memory and 2.5D packaging. Purchase orders already received for 2027 represent twice the platform’s expected 2026 revenues, while Atlas G6 is gaining traction across logic and memory applications.
Advanced-packaging revenues are expected to rise more than 80% in 2026, with management anticipating growth of more than 35% in 2027. Camtek Ltd. (CAMT - Free Report) , another inspection and metrology supplier, reported record third-quarter 2026 revenues of $161.3 million and expects 2027 revenues to exceed $800 million, reflecting continued demand in advanced semiconductor packaging.
ONTO’s Margin Expansion Strengthens the Bull Case
Non-GAAP gross margin improved to 57.6% in the third quarter from 54% a year earlier. Non-GAAP operating margin reached 32.6%, compared with 21.1% in the prior-year quarter.
Management expects fourth-quarter non-GAAP gross margin of 57.7%-58.3% and sees further improvement in 2027. The extended-factory model, regionalized supply chains and productivity measures support an expectation for roughly 50 basis points of gross-margin expansion per quarter over the next several quarters.
Onto’s Valuation and Capital Returns Temper the Upside
ONTO trades at 8.2X trailing 12-month enterprise value-to-sales, above its five-year median of 6.0X and the Zacks Computer and Technology sector’s 7.8X. That premium places more weight on continued revenue growth and margin execution.
Trailing 12-month return on invested capital is 9.7%, below the company’s 10-year median of 11.8%. The $720 million Rigaku investment expanded the capital base, while Semilab USA posted a $2.8 million operating loss in the third quarter. KLA Corporation (KLAC - Free Report) , a larger process-control competitor, reported $4.14 billion in fiscal first-quarter 2027 revenues, underscoring the scale and competitive intensity of the market.
ONTO’s Ranking Mix Favors Selectivity Over Chasing
The setup favors selectivity rather than treating earnings momentum as an automatic buy signal. ONTO’s growth visibility and margin profile are improving, but the valuation premium and lower capital returns argue for discipline on entry price.
ONTO currently carries a Zacks Rank #2 (Buy). Its Momentum Score of B is supportive, while the Value Score of D, Growth Score of C and VGM Score of C show a less uniform style profile. The mix points to favorable near-term earnings-revision momentum, but investors focused on value or broader style strength may prefer to wait for a more balanced risk-reward setup. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
View the Zacks #1 Rank List
Image: Bigstock
Is ONTO Worth Buying as Earnings Surge but Valuation Stays Elevated?
Key Takeaways
Onto Innovation Inc. (ONTO - Free Report) is delivering faster earnings growth, broader AI-related demand and improving profitability. The question is whether those gains are sufficient to offset a valuation that remains above its own historical norm.
Backlog, estimate growth and margin expansion support the bull case. Still, capital returns have softened, acquired businesses add execution demands and the stock’s valuation leaves less room for disappointment.
ONTO’s Earnings Growth Has Accelerated Sharply
Third-quarter revenues rose 87.8% year over year to a record $409.7 million. Non-GAAP operating income increased 189.8% to $133.5 million, while non-GAAP earnings reached $2.44 per share, up 165.2%.
Image Source: Zacks Investment Research
The earnings outlook remains constructive. The Zacks Consensus Estimate calls for 2026 earnings of $8.25 per share and 2027 earnings of $12.44, implying a 50.8% increase next year. The estimate for 2026 earnings has also moved 2.7% higher over the past four weeks.
Onto’s AI Exposure Is Broadening Across Products
Dragonfly G5 adoption has expanded to more than 10 customers across high-bandwidth memory and 2.5D packaging. Purchase orders already received for 2027 represent twice the platform’s expected 2026 revenues, while Atlas G6 is gaining traction across logic and memory applications.
Advanced-packaging revenues are expected to rise more than 80% in 2026, with management anticipating growth of more than 35% in 2027. Camtek Ltd. (CAMT - Free Report) , another inspection and metrology supplier, reported record third-quarter 2026 revenues of $161.3 million and expects 2027 revenues to exceed $800 million, reflecting continued demand in advanced semiconductor packaging.
ONTO’s Margin Expansion Strengthens the Bull Case
Non-GAAP gross margin improved to 57.6% in the third quarter from 54% a year earlier. Non-GAAP operating margin reached 32.6%, compared with 21.1% in the prior-year quarter.
Management expects fourth-quarter non-GAAP gross margin of 57.7%-58.3% and sees further improvement in 2027. The extended-factory model, regionalized supply chains and productivity measures support an expectation for roughly 50 basis points of gross-margin expansion per quarter over the next several quarters.
Onto’s Valuation and Capital Returns Temper the Upside
ONTO trades at 8.2X trailing 12-month enterprise value-to-sales, above its five-year median of 6.0X and the Zacks Computer and Technology sector’s 7.8X. That premium places more weight on continued revenue growth and margin execution.
Trailing 12-month return on invested capital is 9.7%, below the company’s 10-year median of 11.8%. The $720 million Rigaku investment expanded the capital base, while Semilab USA posted a $2.8 million operating loss in the third quarter. KLA Corporation (KLAC - Free Report) , a larger process-control competitor, reported $4.14 billion in fiscal first-quarter 2027 revenues, underscoring the scale and competitive intensity of the market.
ONTO’s Ranking Mix Favors Selectivity Over Chasing
The setup favors selectivity rather than treating earnings momentum as an automatic buy signal. ONTO’s growth visibility and margin profile are improving, but the valuation premium and lower capital returns argue for discipline on entry price.
ONTO currently carries a Zacks Rank #2 (Buy). Its Momentum Score of B is supportive, while the Value Score of D, Growth Score of C and VGM Score of C show a less uniform style profile. The mix points to favorable near-term earnings-revision momentum, but investors focused on value or broader style strength may prefer to wait for a more balanced risk-reward setup. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.