Onto Innovation Q1 2024 slides: AI-driven expansion amid semiconductor market challenges

Introduction & Market Context

Onto Innovation Inc. (NYSE:ONTO), a leading provider of process control solutions for the semiconductor industry, presented its Q1 2024 investor presentation on May 9, 2024, highlighting its strategic positioning to capitalize on artificial intelligence-driven growth despite current market challenges. As the third largest U.S. process control supplier with over 10,000 active metrology and inspection tools installed globally, the company is navigating a complex semiconductor landscape marked by both technological transformation and market volatility.

The presentation comes at a time when Onto’s stock has experienced significant pressure, trading at $96.79 as of June 24, 2025, well below its 52-week high of $238.93. Despite these market challenges, the company outlined how major industry trends are creating substantial growth opportunities, particularly in advanced nodes and heterogeneous packaging technologies essential for AI applications.

Strategic Initiatives for AI-Driven Growth

Onto Innovation’s presentation emphasized how the AI era is dramatically expanding its total addressable market (TAM). According to the company, the process control TAM is projected to triple from $4.2 billion during the Mobility Era to $12.3 billion in the emerging AI Era, driven by advanced technologies including 3D hybrid bonding, gate-all-around transistors, and high bandwidth memory.

As shown in the following chart of the expanding semiconductor market and Onto’s TAM growth:

The company highlighted several macro trends driving its growth strategy, including a 42% CAGR in AI server growth, an 80% CAGR in chiplet packaging, and a 46% CAGR in global EV charging infrastructure. These trends are creating demand for Onto’s specialized metrology and inspection solutions across the semiconductor manufacturing process.

The presentation detailed how new transistor architectures are increasing demand for Onto’s advanced metrology solutions:

A key element of Onto’s strategy involves expanding its footprint in advanced packaging, which is becoming increasingly critical for AI applications. The company explained how the physical limitations of single chip sizes are driving the industry toward chiplet-based architectures, with panel market growth projected to exceed 100% by 2030.

Comprehensive Product Portfolio

Onto Innovation presented its comprehensive portfolio of solutions spanning the entire semiconductor manufacturing process, from front-end wafer fabrication to advanced packaging. The company’s tools address critical measurement and inspection needs across various layers of semiconductor production.

The following image illustrates Onto’s integrated portfolio for advanced heterogeneous packaging:

The company’s key products include the Atlas® V platform for critical Gate-All-Around (GAA) applications, which require over 30% more unique signals than previous FinFET technology. For advanced packaging, the Dragonfly® G3 platform addresses the increasing complexity of metal redistribution layers, while the JetStep® lithography and Firefly® inspection systems provide comprehensive solutions for panel-level packaging.

Onto’s lithography solutions feature 20% higher resolution and 65% better overlay accuracy compared to previous generations, as illustrated in this overview:

Quarterly Performance and Guidance

For Q2 2024, Onto Innovation provided guidance that suggests near-term challenges despite its long-term optimism. The company projected revenue of $230-240 million, representing a sequential decline from the $267 million reported for Q1 2025 in its recent earnings release.

The Q2 guidance details are shown in the following slide:

This guidance reflects a cautious outlook, with gross margins expected between 52-54% and operating margins between 25-27%. The projected EPS range of $1.14-$1.26 also represents a decline from the $1.51 reported for Q1 2025.

According to the company’s earnings call, Q3 2025 is anticipated to be the lowest revenue point for the year, with growth expected to resume in Q4. This sequential decline contrasts with the strong year-over-year growth of 17% reported for Q1 2025.

Long-Term Financial Outlook

Despite near-term challenges, Onto Innovation presented an ambitious long-term financial model targeting $1.8 billion in revenue. The company outlined how margins are expected to improve as revenue scales:

At the $1 billion revenue level, Onto projects gross margins of 56-57% and operating profits of 31-32%. As revenue grows to $1.4 billion, these metrics are expected to improve to 58-59% and 35-36%, respectively. The company anticipates EPS to reach $8.00-$8.50 at the $1.4 billion revenue level, compared to $5.50-$6.00 at $1 billion.

The presentation highlighted multiple growth vectors expected to drive this expansion over the next five years:

Challenges and Investor Response

Despite Onto Innovation’s optimistic long-term outlook, investors appear concerned about near-term challenges. The stock’s current trading level of $96.79 represents a significant decline from its 52-week high, reflecting market skepticism about the company’s growth trajectory.

The contrast between the company’s ambitious growth narrative and its cautious near-term guidance suggests a challenging transition period. While Onto reported strong growth in advanced nodes revenue (up 96% sequentially in Q1 2025), it also experienced declines in specialty devices and advanced packaging segments.

The semiconductor equipment market faces broader cyclical challenges, with Onto’s stock volatility (Beta:1.55) reflecting these industry-wide fluctuations. However, the company maintains that its diverse product portfolio and exposure to high-growth AI applications position it well for long-term success once current market headwinds subside.

As Onto Innovation navigates this transitional period, investors will be closely monitoring whether the company can execute on its long-term growth strategy while managing near-term revenue challenges.

Full presentation:

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