Onto Innovation (ONTO) Soars 30% YTD: Will the Rally Last?

Core Viewpoint - Onto Innovation (ONTO) has shown strong stock performance with a year-to-date gain of 30.3%, significantly outperforming the S&P 500 and its sub-industry [1] Financial Performance - The stock gained 12% since the announcement of second-quarter fiscal 2024 results on August 8, with ONTO surpassing estimates in the last four quarters, averaging a surprise of 6.6% [1][3] - Total revenues for the last reported quarter reached $242.3 million, exceeding the Zacks Consensus Estimate by 2.9% and reflecting a year-over-year growth of 27.1% [3] - Revenues surpassed the company's guidance range of $230-$240 million, with record revenues of $164 million from specialty and advanced packaging customers driven by AI packaging demand [4] Growth Drivers - The demand for the Dragonfly inspection system is a key growth driver, particularly for advanced packaging of AI computing devices [2][3] - ONTO secured over $300 million in volume purchase agreements from two major customers, extending through 2025, focused on AI advanced packaging and gate-all-around technologies [4] - Healthy momentum in advanced nodes sales is attributed to the success of ONTO's Atlas and Iris systems, which support emerging gate-all-around devices [5] Product Development - The introduction of the JetStep X500 lithography tool is aimed at next-generation glass substrates for panel-level packaging, enhancing data collection for process maturation [6] Future Outlook - For the third quarter, management expects revenues between $245-$255 million, with the second half of 2024 projected to be 5-10% stronger than the first half [7] - The Zacks Consensus Estimate for ONTO's revenues in 2024 and 2025 is $968.9 million and $1.1 billion, indicating growth of 18.8% and 13.4% year-over-year, respectively [9] Challenges - Weak global macro conditions, forex fluctuations, and intense competition are noted as concerns, with expected operating expenses for the third quarter ranging from $64-$66 million due to higher R&D costs [8]