Onto Innovation: How a Semiconductor Metrology Leader Turned 52% Growth into $495M Strategic Play

Onto Innovation Inc. (ONTO) has become one of the semiconductor sector’s quiet winners, with shares climbing 51.8% over the past six months—significantly outpacing the Nanotechnology industry’s 47.6% gains and the broader S&P 500’s 12.5% rise. But this isn’t just a momentum story. Behind the rally lies a deliberate strategy combining product innovation, geographic expansion and transformative acquisitions that position the company for sustained growth.

Why Packaging Demand is the Real Catalyst

The semiconductor industry is witnessing a fundamental shift in how chips are manufactured, and Onto is right at the center of it. Customers have signaled they plan to increase tool demand by roughly 20% in 2026, driven by expansions supporting new 2D subsurface and 3Di inspection applications. This demand isn’t speculative—it reflects real capital spending commitments from major chipmakers preparing for advanced packaging requirements.

Onto’s onto function in the production process is becoming increasingly critical. The company’s advanced metrology and inspection tools are essential for optimizing yields in complex packaging architectures where precision matters enormously. With customers ramping 3Di and Dragonfly qualifications, Onto is capturing a bigger slice of the advanced packaging market.

Management projects approximately 18% revenue growth in Q4, supported by nearly doubling of 2.5D packaging customer sales on strong Dragonfly system demand. But here’s what matters more: the company expects sequential growth through the first half of 2026, with stronger momentum accelerating in the second half as new products launch and capacity expansions come online.

Geographic Arbitrage: Asia Factory Ramp-Up Changes the Game

Onto isn’t just riding demand waves—it’s building structural advantages. The company’s expanded Asian manufacturing facilities shipped over 30% of third-quarter tools, a figure expected to jump above 60% by Q1 2026.

Why does this matter? Three reasons: first, it reduces tariff exposure when supply chain restrictions are intensifying; second, it lowers production costs and supports gross margin expansion; third, it positions the company to serve regional customers faster and more competitively. When you combine this geographic flexibility with tariffs eating into margins elsewhere, the shift becomes strategically significant.

The $495M Semilab Acquisition: Connecting the Dots

In November 2025, Onto closed a $495 million acquisition of critical Semilab product lines, adding FAaST, CnCV and MBIR capabilities to its arsenal. These aren’t just new tools—they represent direct access to the materials analysis and contamination monitoring market, which has grown at 20% CAGR since 2021.

Semilab’s materials business is projected to generate $130 million in revenue by 2025. When integrated into Onto, management expects the combination to improve gross margin, operating margin and non-GAAP EPS by over 10% in year one, achieved at a 10x EBITDA multiple that creates real shareholder value.

But the integration strategy is equally important. Management plans to combine Onto’s AI Diffract modeling engine with Semilab’s contamination and materials tools. Layered atop Onto’s existing metrology solutions, this creates a comprehensive platform that helps chipmakers accelerate yield learning and optimize processes for advanced nodes.

Previous acquisitions tell the same story. The 2024 Lumina acquisition expanded laser-based inspection capabilities into unpatterned wafers and emerging materials, adding roughly $250 million to the addressable market. The Kulicke and Soffa lithography business brought valuable IP and technical depth to enhance JetStep offerings. Collectively, these acquisitions are expected to contribute up to $100 million in annual revenue over three years while turning accretive within a year.

Valuation That Doesn’t Match the Growth Story

The market still hasn’t fully priced in Onto’s transformation. The stock trades at a price-to-book ratio of 3.86, significantly below the Nanotechnology industry average of 6.58. For a company delivering mid-teens revenue growth, benefiting from secular trends in advanced packaging, and commanding higher margins through acquisition synergies, the current valuation appears conservative.

Real Risks Worth Monitoring

No growth story is frictionless. Onto faces legitimate headwinds: customer concentration exposure, supplier dependency, and heavy reliance on imported components (nearly 90% of costs). U.S.-China trade tensions are adding concrete pressure—management flagged that fourth-quarter gross margins will be pressured by approximately one percentage point (roughly $2.5 million) due to inbound tariffs on raw materials.

The company is navigating these challenges proactively through geographic diversification, but tariff escalation remains a variable to watch.

The Bottom Line

Onto Innovation’s 52% run isn’t just a valuation repricing—it reflects genuine operational momentum. With packaging demand ramping, Dragonfly adoption accelerating, acquisition synergies beginning to flow through, and margin expansion potential still ahead, the company has multiple growth vectors firing simultaneously. At current valuations, investors tracking semiconductor equipment and advanced packaging trends have a compelling entry point.