ONTO Semiconductors · AI infrastructure · Semicap equipment · Process control · Thesis updated June 13, 2026

AI packaging lifts Onto, margins still need proof

Management now expects more than 30% revenue growth in 2026.
Advanced packaging is the main engine, with more than 50% growth forecast for 2026.
Advanced nodes are also recovering, with about 25% growth expected in 2026.
Gross margin was 50.1% in Q1 2026, still below the prior-year quarter.
The planned 27% Rigaku stake costs about $710 million and adds financing and execution risk.

01 Running thesis

AI demand is turning into orders

Onto is a picks-and-shovels supplier for chipmakers. Its tools inspect and measure wafers and packages so factories can find defects early. The strongest demand is tied to AI chips, especially advanced packaging, which connects chips and high-bandwidth memory, or very fast memory used near AI processors.

The latest update was a clear step up. Management guided to more than 30% revenue growth in 2026, led by more than 50% growth in advanced packaging and about 25% growth in advanced nodes. That matters because Onto had faced worries that growth was too narrow and that margins were stuck under pressure.

The bull case now rests on execution. Dragonfly G5 is qualified at a leading 2.5D logic customer, shipments are ahead of plan, and management sees a pipeline of over 15 applications across more than 10 customers. If that ramp keeps going, Onto can regain share in packaging inspection while still benefiting from logic and memory spending.

The bear case is less severe, but it did not disappear. Q1 2026 gross margin was 50.1%, down from 53.7% in the year-ago quarter, partly due to inventory write-downs and Semilab inventory step-up amortization. Management expects gross margin to improve in Q3 and Q4 by at least 50 basis points per quarter and to exit Q4 with operating margin above 30%, so the next test is whether that promise shows up in reported results.

May 2026▲Q1 2026 guidance raised the bar. Management guided to more than 30% 2026 revenue growth, more than 50% advanced packaging growth, about 25% advanced nodes growth, and sequential gross margin improvement later in the year.

May 2026→The Q1 2026 filing added the planned 27% Rigaku stake for about $710 million and a committed $500 million bridge loan. This adds a new strategic option, but also financing and execution risk.

Feb 2026▼The 2025 Form 10-K showed only 2% revenue growth for fiscal 2025 and gross margin of 49.7%, down from 52.2% in fiscal 2024. It also confirmed that China trade limits had already hurt results.

Feb 2026▲Q4 2025 set a revenue record at $267 million and added a multi-year volume purchase agreement worth over $240 million with a key HBM customer. That made the AI packaging story more visible.

Nov 2025▲Management guided to about 18% sequential revenue growth for Q4 and reported important product progress. 3Di qualified at two HBM customers, and the next-generation Dragonfly system began shipping.

Nov 2025▼The Q3 2025 filing showed a 14% sequential revenue decline, mainly from weaker DRAM and NAND sales in advanced nodes. The Semilab deal was also narrowed after a Justice Department information request.

Aug 2025→The planned Semilab USA acquisition expanded Onto's technology base, but the core business still had weakness in advanced packaging inspection. Memory recovery was helping, but integration risk increased.

May 2025▼Management explained that Onto had a product capability gap in 2.5D packaging inspection. The next-generation platform could close the gap, but the near-term outlook became more dependent on execution.

02 Business model

Tools first, service after the sale

Onto makes money mostly by selling systems and software to semiconductor makers. In Q1 2026, systems and software were 84.7% of revenue. Parts were 9.1% and services were 6.2%, which gives the company some repeat business after tools are installed.

The product is important because small defects can ruin expensive chips. Onto sells inspection, metrology, lithography, and process control software. Metrology means measuring tiny chip features during manufacturing.

The model can be very attractive when chip factories are spending. Customers buy expensive tools, then need upgrades, repairs, software, and support. It can also turn fast when customers slow capital spending, delay projects, or pick a rival tool.

Capital allocation is changing too. Onto bought Semilab USA and agreed to buy a 27% stake in Rigaku for about $710 million, backed by a committed $500 million bridge loan. Management says software licenses and dividends from Rigaku can help offset lost interest income within a year after closing, but that is still an open proof point.

03 Product portfolio

The tools that matter most

Growth engine

Dragonfly G5 inspection

This is the key new packaging inspection platform. It is qualified at a leading 2.5D logic customer, with shipments ahead of plan and a pipeline of over 15 applications across more than 10 customers.

Growth engine

3Di metrology

3Di measures smaller and denser 3D interconnects, which are important for high-bandwidth memory. Management reported over 10 additional orders in the quarter.

Growth engine

Atlas G6 metrology

Atlas G6 supports advanced nodes, including next-generation logic. The platform is gaining share and added a TSV metrology win, which means measuring through-silicon vias used to connect chips vertically.

Steady

Process control software

Software helps customers use data from tools to improve yield and factory output. It also supports the installed base after the original equipment sale.

Steady

Parts and services

Parts and services made up 15.3% of Q1 2026 revenue combined. This revenue rises when customers repair, upgrade, and keep older systems running.

Option

Semilab USA portfolio

Semilab USA adds new metrology technology and contributed $24.0 million of systems and software revenue in Q1 2026. The upside depends on integration and cross-selling.

Option

Rigaku partnership

The planned Rigaku stake is not a normal product line, but it could expand Onto's hybrid metrology reach. The value depends on closing the deal and turning the partnership into real income and customer wins.

04 Business segments

What customers buy

Systems and software85%growing fast

Parts9%modest

Services6%modest

This mix uses Onto's Q1 2026 Form 10-Q revenue disclosure by source. The company also discusses markets like advanced packaging and advanced nodes, but the quarterly filing table breaks revenue into systems and software, parts, and services.

05 Risk factors

What could break the story

Margin recovery misses the guide

High impact · Medium odds

Management says gross margin should improve in Q3 and Q4 by at least 50 basis points per quarter. That is important because Q1 2026 gross margin was 50.1%, down from 53.7% a year earlier. Rising material costs, shipping charges, inventory write-downs, and acquisition costs could slow the recovery.

We watchQuarterly gross margin, Q3 and Q4 sequential change, and whether Q4 operating margin exits above 30%.

Dragonfly G5 ramp disappoints

High impact · Medium odds

Dragonfly G5 is central to the share-gain story in advanced packaging. Onto had a prior 2.5D packaging inspection gap, so customer acceptance matters more than a normal product refresh. If orders do not turn into shipments, the 2026 growth guide gets harder to hit.

We watchCustomer qualifications, shipments, backlog comments, and named progress across the over 15 application pipeline.

Customer concentration and capex cycles

High impact · Medium odds

Onto sells into large semiconductor capital spending plans. A small number of big customers can move revenue a lot. If AI packaging, memory, or logic customers delay factory spending, revenue can fall quickly.

We watchLarge order announcements, HBM customer spending plans, and any change to the multi-year purchase agreement tied to Dragonfly 2D and 3D bump metrology.

China trade controls stay painful

Medium impact · High odds

The 2025 Form 10-K says tariffs, export rules, and market barriers have adversely affected results and the ability to compete in China. China revenue fell to 7% in fiscal 2025 from 12% the prior year. More rules could limit sales or push customers toward local tools.

We watchNew U.S. export controls, license approvals, China revenue mix, and management comments on lost China opportunities.

Rigaku deal adds financial risk

Medium impact · Medium odds

Onto agreed to buy 27% of Rigaku for about $710 million and lined up a $500 million bridge loan. That is a large change for a company that has mostly sold tools and bought technology businesses. The partnership must produce software license income, dividends, or strategic wins to justify the cash and debt risk.

We watchDeal closing timing, final financing terms, Rigaku income contribution, and whether management says it offsets lost interest income within the first year.

06 Quick answers

In one breath

What does Onto Innovation actually do?

Onto sells machines and software that inspect and measure chips during manufacturing. Chipmakers use these tools to catch defects, improve yield, and make advanced packages for AI and other high-end chips.

Why is Onto tied to AI?

AI chips need advanced packaging and high-bandwidth memory. Onto's Dragonfly and 3Di tools help inspect and measure those packages, so AI-related factory spending can drive demand.

What is the main thing to watch in 2026?

Watch whether management hits the more than 30% revenue growth guide and improves gross margin each quarter. The Dragonfly G5 ramp and Q4 operating margin target above 30% are the clearest proof points.

Is the Rigaku investment good or bad?

It could help Onto expand in hybrid metrology, but it also uses a lot of capital. The deal is best viewed as an option until investors see real income, customer wins, and clear financing terms.