Key insights
- Morgan Stanley initiated Onto Innovation (ONTO) with an overweight rating and a $371 price target, citing expected outperformance in advanced node revenue and specialty device/advanced packaging segments. The firm projects significant revenue growth and gross margin expansion, driven by product strength and manufacturing shifts. Despite a potential overvaluation relative to fair value, the analyst's positive outlook and the company's recent convertible notes offering suggest bullish sentiment for the semiconductor equipment sector.
Investing.com - Morgan Stanley initiated coverage on Onto Innovation Inc. (NYSE:ONTO) with an overweight rating and a price target of $371.00. The stock currently trades at $323.88, representing 15% upside to the target. According to InvestingPro data, 7 analysts have revised their earnings upwards for the upcoming period, reinforcing the bullish sentiment.
The firm expects the process control semiconductor equipment company to outgrow wafer fabrication equipment spending in advanced node revenue. Morgan Stanley projects Onto Innovation’s advanced node revenue will grow 30% in 2026 versus WFE at 27%, and 39% in 2027 versus WFE at 28%.
Morgan Stanley forecasts the company’s Specialty Device and Advanced Packaging revenue will grow 46% in 2026 and 38% in 2027. The growth is expected to be led by Dragonfly G5 in advanced packaging and inorganic growth from Semilab in Specialty Device.
The firm projects Onto Innovation’s gross margin will expand from 54.6% in 2025 to 58.0% in 2027 and 58.3% in 2028. The company’s current gross profit margin stands at 54.19% for the last twelve months. While InvestingPro analysis suggests the stock is overvalued relative to its Fair Value, investors can access the comprehensive Pro Research Report for deeper insights into ONTO’s valuation and growth prospects. The expansion is attributed to the company’s manufacturing shift to Asia and stronger front-end and software revenue.
Morgan Stanley notes that semiconductor equipment companies with 60% gross margins trade at a 24% valuation premium to those with 50% gross margins.
In other recent news, Onto Innovation Inc. announced the pricing of its $1.3 billion convertible senior notes offering, an increase from the initially planned $1.1 billion. The notes, which are due in 2031, were priced with a 0.00% interest rate and an initial conversion price of approximately $381.80 per share. This offering reflects a 50% premium to the last reported sale price of $254.53. Additionally, Deutsche Bank has initiated coverage on Onto Innovation with a Buy rating, citing the company’s potential to benefit from increased wafer fabrication equipment spending. Deutsche Bank set a price target of $350.00, highlighting growth drivers that could allow the company to outpace its peers. Stifel also reiterated a Buy rating with the same price target, noting accelerated adoption of Onto Innovation’s Dragonfly G5 inspection tool by key customers. These developments are part of a series of strategic moves by Onto Innovation to strengthen its market position.
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