Why Onto Innovation (ONTO) is a Buy Amid Semiconductor Industry Expansion

The semiconductor industry is undergoing a transformative phase, driven by relentless innovation in advanced manufacturing processes and the escalating demand for precision in metrology and inspection tools. Amid this backdrop, Onto Innovation (ONTO) has emerged as a compelling investment opportunity, buoyed by strategic acquisitions, improved analyst sentiment, and robust industry tailwinds. This analysis examines why ONTO is positioned to capitalize on these dynamics, making it a standout buy for investors seeking exposure to the next frontier of semiconductor technology.

Strategic Acquisition-Driven Growth: The Semilab Deal

Onto Innovation's recent acquisition of Semilab International's materials analysis product lines for $495 million has been a pivotal catalyst for its growth trajectory. This acquisition not only expanded ONTO's portfolio with cutting-edge tools like FAaST® and CnCV® but also delivered immediate financial benefits. According to a report, the company revised its fourth-quarter revenue guidance to a range of $258 million to $275 million, with the Semilab acquisition contributing $8 million to $10 million in revenue within six weeks of integration. Such rapid accretion underscores the operational efficiency of ONTO's integration strategy and its ability to leverage newly acquired assets to meet surging demand for advanced process control solutions.

The acquisition also strengthens ONTO's position in the semiconductor metrology and inspection tools market, a sector critical to managing the complexities of sub-7 nm nodes and 3D NAND technologies. As gate-all-around transistors and hybrid bonding gain traction, the demand for high-precision metrology tools is set to rise, and ONTO's expanded capabilities position it to capture a larger share of this growth.

Analyst Sentiment: A Consensus of Optimism

The confidence in ONTO's strategic direction is reflected in the recent upward revision of price targets by key analysts. B. Riley Securities analyst Craig Ellis raised his price target for ONTO to $180 from $173, maintaining a "Buy" rating. This adjustment followed a revised financial model incorporating the Semilab acquisition's impact and reflects expectations of improved revenue growth and profit margins. Notably, this is the second price target increase from B. Riley in under a month, with the previous adjustment from $170 to $173 on November 7, 2025.

The optimism is not confined to B. Riley. Analysts at Evercore ISI and Jefferies have also raised their price targets, signaling a broader consensus on ONTO's potential. These upgrades are underpinned by the company's ability to execute on its acquisition strategy while aligning with industry trends such as AI-driven defect detection and the expansion of foundry capacities in the Asia-Pacific region.

Industry Tailwinds: A Booming Market for Metrology Tools

The semiconductor metrology and inspection tools market is poised for significant expansion. Data from Grand View Research indicates that the market size in 2025 is estimated at $8.34 billion, with a projected compound annual growth rate (CAGR) of 6.6%, reaching $10.76 billion by 2029. Another report by Mordor Intelligence forecasts an even higher CAGR of 6.9%, with the market expanding from $8.98 billion in 2024 to $16.21 billion by 2033. These projections highlight the sector's resilience and the critical role of metrology tools in enabling next-generation semiconductor manufacturing.

Key drivers include the adoption of AI and machine learning for defect detection, which enhances precision and reduces production costs. Additionally, the shift toward advanced packaging and the proliferation of hybrid bonding technologies are creating new demand for inspection solutions. ONTO's expanded product portfolio, bolstered by the Semilab acquisition, is uniquely positioned to address these evolving needs.

Conclusion: A Compelling Case for Investment

Onto Innovation's strategic acquisition of Semilab International, coupled with a strong analyst consensus and favorable industry trends, presents a compelling case for investment. The company's ability to rapidly integrate high-value assets and translate them into revenue growth demonstrates operational excellence. Meanwhile, the semiconductor metrology and inspection tools market's projected expansion provides a durable tailwind for ONTO's long-term prospects. With a price target of $180 from B. Riley and a projected upside of 44.05% from current levels, ONTO offers both near-term momentum and long-term value creation. For investors seeking to capitalize on the semiconductor industry's next phase of innovation, ONTO is a buy.