Onto Innovation Stock Climbing as Uptrend Stocks Gain Momentum: Can ONTO Sustain Its Rally?

Onto Innovation Inc. (ONTO) has emerged as one of the standout uptrend stocks in the semiconductor equipment space, delivering impressive gains of 51.8% over the past six months. This performance significantly outpaces its industry benchmarks—the Nanotechnology sector gained 47.6%, while the Computer and Technology sector and S&P 500 composite respectively returned 17.8% and 12.5%. The company’s three-month surge of 9.8% suggests the rally still has room to run.

What’s Driving the Uptrend?

The momentum behind ONTO stems from two primary catalysts: a strengthened portfolio in artificial intelligence-powered advanced packaging solutions and strategic capacity expansions in Asian markets.

Packaging demand is accelerating. Onto’s customers are signaling plans to increase tool demand by approximately 20% in 2026, driven by expansions in 2D subsurface and 3Di inspection applications. Management projects sequential revenue growth in the first half of 2026 with accelerating momentum in the second half, supported by new product launches and customer capacity buildouts.

Manufacturing footprint optimization is paying off. The company has ramped up its Asian production facilities with over 30% of third-quarter tools shipped from these locations. By first-quarter 2026, offshore manufacturing is expected to account for more than 60% of total output. This geographic diversification reduces tariff exposure, improves operational flexibility and supports gross margin expansion—a crucial driver for the stock’s uptrend.

Revenue guidance for the fourth quarter reflects management’s confidence, with approximately 18% growth expected at the midpoint. Notably, 2.5D packaging customer sales are nearly doubling on robust Dragonfly system adoption, while advanced node revenue is projected to rise with higher DRAM and logic capital expenditures.

Acquisitions Amplify Growth Potential

Onto’s M&A strategy is reshaping its competitive positioning. In November 2025, the company closed its $495 million acquisition of Semilab’s key product lines, adding FAaST, CnCV and MBIR tools to its metrology arsenal. The Semilab materials analysis business has grown at approximately 20% CAGR since 2021 and is projected to generate $130 million in annual revenue.

Integration expectations are ambitious: the acquisition is forecast to improve gross margin, operating margin and non-GAAP earnings per share by more than 10% within the first year alone, measured at a 10x EBITDA valuation multiple. Management plans to merge its proprietary AI Diffract modeling engine with Semilab’s contamination and materials monitoring capabilities, creating a comprehensive solution suite for chipmakers pursuing yield acceleration and advanced node process optimization.

Earlier acquisitions like Lumina (2024) expanded inspection capabilities into laser-based solutions for unpatterned wafers and advanced packaging, estimated to add $250 million to its serviceable addressable market. The acquisition of Kulicke and Soffa’s lithography business strengthened JetStep panel lithography and metrology offerings through valuable intellectual property and technical expertise.

Collectively, these acquisitions are poised to contribute up to $100 million in annual revenue within three years while turning earnings accretive within twelve months.

Headwinds Worth Monitoring

Despite the bullish setup, several risks merit consideration. High customer concentration creates earnings volatility, while supplier dependencies could constrain supply chain flexibility. The macroeconomic environment remains uncertain given Onto’s extensive geographic footprint.

U.S.-China trade tensions pose a material challenge. Though Onto avoids tariffs on tooling sales, approximately 90% of its input costs stem from imported components, creating exposure to both inbound and outbound tariff regimes. Management flagged that fourth-quarter gross margin will be pressured by roughly one percentage point (approximately $2.5 million) due to inbound tariffs on raw material imports, with guidance ranging between 53.5% and 55%.

Valuation Supports the Uptrend Case

From a valuation perspective, ONTO trades at a price-to-book ratio of 3.86, a meaningful discount to the Nanotechnology industry average of 6.58, suggesting potential downside protection for equity holders.

The Investment Thesis

The combination of 20% higher packaging tool demand, strategic geographic manufacturing expansion, successful recent acquisitions, margin expansion potential and an attractive valuation multiple positions Onto Innovation as a compelling addition to growth-oriented portfolios. While near-term tariff headwinds warrant caution, the medium-term fundamentals suggest this uptrend stocks candidate can deliver sustained shareholder value.

ONTO currently carries a Zacks Rank #2 (Buy) rating, reflecting analyst confidence in its trajectory.