Onto Innovation Inc. ONTO is benefiting from accelerating AI-related demand, rising earnings expectations and improving profitability. Advanced packaging, advanced nodes and new process-control applications give the company several growth engines.
The trade-off is valuation. ONTO trades well above its own historical multiple and the broader market, so continued execution matters. Customer concentration, input costs and integration spending add risk when expectations are already elevated.
ONTO's AI Exposure Is Broadening
Management expects advanced-packaging revenue to grow at least 80% in 2026 and advanced-node revenue to rise more than 35%. Dragonfly demand is expanding across high-bandwidth memory and 2.5D logic packaging, while Atlas G6 adoption is growing in logic and memory. Onto also has more than $50 million of silicon-photonics orders, with roughly two-thirds scheduled for 2027.
KLA Corporation KLAC is seeing AI infrastructure drive process-control demand across foundry/logic, memory and advanced packaging. Nova Ltd.NVMI also reported record second-quarter 2026 revenue from advanced logic devices and advanced-packaging solutions, underscoring the broader process-control opportunity tied to device complexity.
Onto's Margins Add Operating Leverage
Second-quarter non-GAAP gross margin reached 57%, while non-GAAP operating margin expanded to 30%. Management expects another 50 basis points of gross-margin improvement in each of the third and fourth quarters.
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Non-GAAP operating margin is expected near 32% in the third quarter and at least 33% exiting 2026. Extended factories are scaling alongside higher demand, giving Onto an avenue to convert revenue growth into stronger earnings growth if execution remains on track.
ONTO's Valuation Leaves Less Room for Error
ONTO trades at 15.2X trailing 12-month enterprise value-to-sales, versus a five-year median of 5.7X. The multiple also exceeds 8.4X for the Zacks sector and 5.7X for the S&P 500.
The counterpoint is the Zacks sub-industry's 38.5X multiple, which is much higher than ONTO's. Even so, the premium to ONTO's own history and the broader market means investors are already paying for sustained growth and margin expansion.
Onto's Risks Complicate the Buy Case
Four customers accounted for 57.3% of first-half 2026 revenues, making changes in large customers' capital plans consequential. Trade-policy shifts, material costs, fuel surcharges, freight expense and supply-chain constraints can also pressure execution.
Portfolio expansion adds another layer of cost. Semilab USA generated $20.7 million of second-quarter revenue but posted a $4.5 million operating loss. Onto must keep investing in product development and customer qualifications while integrating acquired technologies.
ONTO's Near-Term Signal Clashes With Style Scores
ONTO's AI exposure, rising estimates and margin expansion support a constructive view, but the valuation leaves little room for execution misses. For new buyers, that mix favors a selective entry rather than chasing the stock solely on growth expectations.
The stock currently carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for 2026 earnings has risen 10.5% in the past month and 15.4% in the past 12 weeks, pointing to favorable near-term estimate-revision momentum.  You can see the complete list of today’s Zacks #1 Rank stocks here.
ONTO has a Value Score of F, Growth Score of D, Momentum Score of C and VGM Score of F. Those grades fall short of the A or B Style Scores that typically provide stronger confirmation for top-ranked stocks, leaving the near-term Rank signal more favorable than the broader style profile.
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