Onto Innovation Named Top Pick for 2025 at Needham

Needham analysts reaffirmed their Buy rating for Onto Innovation (NYSE:ONTO) while lowering the price target to $220 from $230. Despite the adjustment, Onto has been added to the Needham Conviction List, and named as the firm’s top pick for 2025, citing its strong position in advanced technologies and minimal exposure to China.

According to the analysts, Onto Innovation’s limited reliance on the Chinese market remains a key strength, especially as geopolitical challenges persist in the semiconductor industry. The company’s strategic focus on advanced node technologies and partnerships with leading clients positions it for industry-leading growth in 2025, even as wafer fabrication equipment (WFE) peers face broader headwinds.

AI demand is expected to be a significant growth driver, particularly through Onto’s involvement in advanced packaging, bolstered by TSMC’s CoWoS spending and opportunities related to high-bandwidth memory (HBM). Although the company has previously expressed caution about HBM, its advanced packaging segment is forecasted to remain strong throughout 2025. Advanced node revenue, already recovering in the fourth quarter of 2024, is anticipated to grow over 40% in 2025, even with a conservative projection.

By segment, growth in gate-all-around (GAA) technologies is expected to continue throughout the year, with DRAM, particularly from Samsung, showing renewed strength in the first half of 2025. While Onto’s advanced node business has traditionally leaned toward NAND, the analysts mentioned that any recovery in NAND-related spending would serve as an additional boost to its performance.

On Friday, May 10, 2024, Benchmark upgraded Onto Innovation Inc. (NYSE:ONTO) to a Buy status, previously maintaining a hold position, reflecting a positive shift in their assessment of Onto Innovation's financial health and market potential. This upgrade was notably marked by a substantial increase in ONTO's price target, jumping from $180 to $230, as reported by TheFly. This adjustment not only underscores Benchmark's confidence in ONTO's future performance but also aligns with the company's recent financial achievements, which have evidently surpassed industry expectations.

Onto Innovation Inc. (NYSE:ONTO) demonstrated a robust financial performance in the first quarter of 2024, with earnings per share (EPS) reaching $1.18. This figure not only exceeded the Zacks Consensus Estimate by 7.3% but also represented a significant year-over-year growth of 28.3%. Such an earnings surprise is indicative of ONTO's operational efficiency and its ability to outperform market predictions, a trend that has been consistent in three out of the last four quarters.

The company's revenue for the same period stood at $228.8 million, surpassing the Zacks Consensus Estimate by 2.9% and showcasing a 14.9% increase from the previous year. This revenue growth, attributed to customer capacity expansions in high-performance computing and high-bandwidth memory sectors, highlights ONTO's strategic positioning in markets critical for AI technology growth.

A closer look at ONTO's product performance reveals the Dragonfly inspection system as a significant revenue driver, with a 30% quarter-over-quarter increase. This system's growing demand for the advanced packaging of AI compute devices underscores ONTO's pivotal role in supporting the burgeoning AI market.

Furthermore, the company reported a 45% sequential increase in revenues from advanced nodes, totaling $27 million, and a marginal sequential rise in revenues from specialty devices and advanced packaging, reaching $158 million. These figures not only demonstrate ONTO's strong market presence but also its ability to capitalize on emerging technology trends.

The financial metrics and market performance of ONTO paint a picture of a company on an upward trajectory. With a closing stock price of $219.23, marking a 5.19% increase and reaching a year-high of $233.84, ONTO's market valuation stands impressively at approximately $10.77 billion. The trading volume of 129,200 shares on the NYSE further reflects investors confidence in ONTO's market strategy and financial stability.

This positive momentum is a testament to ONTO's strategic focus on high-growth sectors such as AI, high-performance computing, and advanced packaging technologies, positioning it as a key player in the semiconductor manufacturing equipment sector.