Iinvesting.com — A Mizuho analyst identified Onto Innovation (NYSE:) as a standout “top SMID cap long idea,” highlighting its potential for significant upside in 2025.
Despite a cautious outlook on the semiconductor capital equipment sector due to differing expectations between buyside investors and company management regarding industry growth, the firm remains bullish on Onto Innovation.
According to Mizuho (NYSE:), Onto Innovation is poised for a “beat and raise” set up in 2025, driven by new inspection and metrology tool orders anticipated in the first half of the year.
These orders, which are said to be crucial for supporting AI silicon production through TSMC’s CoWoS technology, were confirmed with a $69 million volume purchase agreement from a leading DRAM manufacturer.
The agreement includes Onto’s optical metrology ecosystem and the new Iris G2 system, designed for both common and critical film metrology.
“This morning ONTO released a PR with that awaited follow-on HBM equipment order from a leading DRAM manufacturer,” Mizuho noted.
The delivery of these orders begins in Q1 2025, aligning with expectations of a DRAM market recovery. Additionally, Onto’s robust demand for film metrology nearly doubled year-over-year, reinforcing its growth trajectory.
Mizuho believes Onto Innovation is well-positioned as the best pure-play SMID inspection and metrology stock, benefiting from expansions in HBM, logic, and gate-all-around (GAA) technology.
The analysts highlight that Onto’s revenue growth estimates for Q1 2025 and the full year appear conservative, with the potential for over 30% annual EPS growth and a PEG ratio under 1x.
With an average consensus target price 33% higher than its current $190 stock price, Onto Innovation is deemed a compelling investment. The Mizuho analyst says he would be an early buyer, noting that the setup makes ONTO a top pick in the SMID cap space.
