Onto Innovation Q2 Earnings Beat Estimates on Record Revenues

According to management, customer visibility remains high as semiconductor companies continue investing in multi-year expansion initiatives. One of the most notable highlights was the company's backlog surpassing $1 billion for the first time. The company expects these investments to support solid second-half 2026 revenue, sustained AI infrastructure spending and demand that extends well into 2027. The record backlog offers greater revenue visibility and indicates customer confidence despite broader macroeconomic uncertainties.

Following the successful launch of Dragonfly G5, Onto Innovation is seeing record demand across a broader customer base, prompting it to raise its full-year advanced packaging growth outlook to about 80% from 50%. Demand is being driven by HBM manufacturers and OSATs supporting AI-focused heterogeneous packaging. During the quarter, the company secured more than $200 million in Dragonfly orders from a single OSAT customer, with most deliveries scheduled for 2027.

Advanced Packaging and Specialty Devices accounted for nearly half of second-quarter revenue. Dragonfly inspection revenue rose 30% sequentially, driven by 2.5D and HBM demand. At the same time, other packaging and specialty segments, including power and SDI, declined as expected but are projected to recover to first-quarter levels next quarter.

Advanced Nodes revenue increased approximately 50% sequentially to $120 million, reflecting stronger customer spending on next-generation semiconductor technologies required for AI processors and high-performance computing chips. In this category, memory accounted for around 60% of revenue and increased about 60% sequentially, while logic advanced more than 40%.

Software and services accounted for the remainder of the second quarter revenue.

Margins Improve Across the Board

Non-GAAP gross margin was 57%, up 250 basis points (bps) year over year and 130 bps sequentially, exceeding management's initial target of 200 bps of margin expansion for 2026.

Non-GAAP operating income rose to $102.8 million from $65.6 million in the prior-year quarter. Driven by stronger operating leverage, Onto Innovation's operating margin expanded to 30%, up nearly 500 bps from the beginning of the year.

Total operating expenses for the quarter were $119.7 million compared with $89.9 million in the previous-year quarter.

Liquidity

As of June 30, 2026, the company had $1.9 billion in cash, cash equivalents and marketable securities and $271.6 million of total current liabilities compared with $654.2 million and $214.5 million, respectively, as of March 31.

Accounts receivable were $337.4 million.

Onto Innovation generated $62 million in cash from operations during the quarter, representing just over 100% of net income.

Q3 2026 Outlook Remains Encouraging

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, ONTO 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 bps in each of third and fourth quarters. The company expects gross margin between 57.3% and 57.8%.

Onto expects operating margin to improve by 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.

It further expects non-GAAP EPS between $2.18 and $2.38, GAAP EPS of $1.54 to $1.70 and GAAP operating margin of 21.4% to 22.4%.

ONTO’s Zacks Rank

Onto Innovation currently boasts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Recent Performances

Watts Water Technologies, Inc. WTS reported second-quarter 2026 adjusted earnings of $3.66 per share, up 18.4% from $3.09 a year ago. The bottom line beat the Zacks Consensus Estimate of $3.34 by 9.6%. Net sales rose 18.6% year over year to $763.2 million and topped the consensus mark of $726 million by 5.1%. Organic sales advanced 12.2%, driven by favorable pricing, higher volumes and data center growth. Year-to-date data center sales represented 8% of total sales.

TELUS Corporation TU reported second-quarter 2026 adjusted earnings per share of C$0.16, down 27% from C$0.22 a year ago. Adjusted net income fell 26% to C$254 million, while operating revenues and other income declined 3% to C$4,929 million, pressured by weaker TELUS Digital results, lower mobile equipment revenues and reduced other income.

Fortive Corporation FTV reported second-quarter 2026 adjusted earnings of 74 cents per share, which jumped 28.5% year over year and topped the Zacks Consensus Estimate of 71 cents by 4.2%. Revenues rose 7.9% year over year to $1.10 billion and beat the consensus estimate of $1.06 billion by 3.5%. Core revenues increased 6.7%, reflecting price and volume growth in both operating segments.

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