Monday, Needham analysts adjusted their price target for Onto Innovation Inc. (NYSE: NYSE:ONTO) shares, lowering it to $220 from the previous $230, while maintaining a Buy rating on the stock. Currently trading at $189.61 with a market capitalization of $9.37 billion, ONTO was added to the Needham Conviction List, replacing Cadence Design Systems (NASDAQ:CDNS), and named as their Top Pick for 2025. According to InvestingPro data, analyst targets range from $220 to $280, suggesting potential upside from current levels.
The analysts believe that ONTO's limited exposure to the Chinese market is a strategic advantage and anticipate that the company's focus on artificial intelligence (AI) will drive significant business growth in 2025. They predict that Taiwan Semiconductor Manufacturing Company's (TSMC) CoWoS spending in the second half of 2025 and potential upside from High Bandwidth (NASDAQ:BAND) Memory (HBM), despite previous negative commentary, will keep ONTO's Advanced Packaging (NYSE:PKG) business thriving.
ONTO's advanced node business is expected to experience industry-leading growth this year, supported by its strategic focus on leading customers and minimal exposure to China. A recovery in advanced node revenue has already been observed in the fourth quarter of 2024, and even if this revenue were to remain constant throughout 2025, it would still represent over 40% growth.
By segment, the analysts forecast that Gate-All-Around (GAA) technology will maintain its strength throughout the year, and that DRAM, particularly from Samsung (KS:005930), will see an increase in the first half of 2025. Although ONTO's business is historically more reliant on NAND than other areas, any improvement in the NAND market would further enhance its performance.
Despite ONTO's exit from the Chinese market due to competition and strategic shifts, the analysts note that this has reduced the company's risk exposure in that region. The company maintains a strong financial position, with InvestingPro analysis showing an overall Financial Health score of "GREAT" and more cash than debt on its balance sheet. While the stock's current P/E ratio of 51.09x appears elevated, analysts argue that the business's potential for growth justifies its valuation, supported by a robust revenue growth of 10.81% in the last twelve months.
In conclusion, Needham's analysts are optimistic about ONTO's prospects, citing the semiconductor industry's AI upcycle and the downcycle in China's semiconductor capital equipment market as favorable trends that should support the company's performance and valuation in the coming years. For deeper insights into ONTO's valuation metrics, growth potential, and comprehensive financial analysis, investors can access the detailed Pro Research Report available on InvestingPro, which offers expert analysis of over 1,400 US stocks, including key metrics and actionable intelligence for informed investment decisions.
In other recent news, Onto Innovation reported a record Q3 revenue of $252 million, marking a 22% increase year-over-year, along with a gross margin of 54.5% and a record cash generation of $67 million from operations. The company projects substantial growth in its inspection revenue, driven by strategic acquisitions such as Lumina Instruments and Kulicke and Soffa (NASDAQ:KLIC)'s lithography business. Onto Innovation also revealed a Q4 revenue forecast between $253 million and $267 million, with gross margins of 54% to 55%.
Analysts at Cantor Fitzgerald initiated coverage on Onto Innovation with an Overweight rating and set a price target of $250, due to the firm's positive outlook on the company's prospects, particularly in the high bandwidth memory (HBM) market. The company's strong financial position was highlighted by a robust revenue growth of 10.8% over the last twelve months and an impressive current ratio of 10.07.
Onto Innovation recently announced the appointment of Mr. Ido Dolev as Executive Vice President of the Product Solutions Group. Mr. Dolev, with his extensive experience in the semiconductor industry, is expected to oversee all product solutions, including inspection, metrology, lithography, and software for the company. These are recent developments based on past articles and recent SEC filings by Onto Innovation Inc.
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