Onto Innovation: AI's Next Bottleneck Is Yield

Onto Innovation is rated Buy, supported by robust process-control demand in advanced semiconductor packaging and expanding product breadth. ONTO's Q2 revenue rose 35% YoY to $343M, with non-GAAP operating margin at 30% and EPS at $1.93; management guides for accelerating growth in H2. Backlog conversion, Dragonfly G5 adoption, and integration of Semilab USA and Rigaku partnerships are key to sustaining above-market earnings growth. At ~$292, ONTO trades at a slight premium to historical multiples, leaving limited margin for execution errors but offering ~20% upside to $350 fair value.

The next wave of money spent in the field of artificial intelligence semiconductors will not be based solely upon shrinking the size of the transistor.