Onto Innovation (NYSE:ONTO) will report third-quarter results shortly after the market closes in less than three weeks, and the company has already put a number on what it expects. It guided revenue to between $380 million and $400 million, a clear step above the $343.1 million it booked in the second quarter, which was itself a company record. Onto Innovation is one of the 8 Best NYSE Stocks with Huge Upside Potential.
The question for the report is whether a backlog that passed $1 billion for the first time in company history turns into sales on schedule. With those orders already in hand, landing inside the guided range looks likely. The harder part is the price, because the earnings behind it are adjusted figures that run well above what the company reports under GAAP.
Chipmakers Rely on Onto to Catch Defects
Onto makes machines that inspect and measure chips while they are being built, so manufacturers can find flaws before they ruin an expensive batch. That work matters more as AI chips pack memory and processors closer together, and as each new generation of memory gets harder to make without defects.
In a release earlier this month, the company said SK hynix, which makes high bandwidth memory, gave it a Best Partner Award for technology achievement. The award recognized a defect prevention system built around the Dragonfly G5 inspection tool, and Onto said it was the only company SK hynix honored in that category. In the second quarter, revenue from its advanced packaging and specialty devices products reached an all-time high. Its advanced nodes business also set a quarterly record. If you’re interested in AI chip stocks, we recently compiled a report on 10 Best AI Chip Stocks to Buy for the Long Term.
Q3 Guidance Asks for a Big Step Up
Against recent history, the step is larger still. Sales growth averaged 0.00% a year over the past three years, and earnings per share fell about 14.8% a year over the same stretch. Management now says it expects a strong second half, with demand trends it believes will extend into 2027.
The third-quarter guide is where that starts to show. Onto guided adjusted earnings of $2.18 to $2.38 a share, against $1.93 in the second quarter, and it guided its adjusted operating margin higher as well. For investors looking to add semiconductor equipment exposure, our list of 7 Best Semiconductor Equipment Stocks to Buy covers more names.
GAAP Earnings Run Well Below Adjusted Earnings
In the second quarter, GAAP earnings were $1.21 a share against $1.93 on an adjusted basis. The difference came from restructuring costs, amortization of acquired intangibles and acquisition-related expenses that the adjusted number leaves out. The third-quarter GAAP guide, $1.54 to $1.70 a share, shows a similar distance from the adjusted range.
None of that means the quarter was weak, since revenue and margins both rose from a year earlier. But anyone holding the shares owns a stock priced on the adjusted number, while the reported number trails it by a wide margin. That matters more for a company still absorbing acquisitions, because those costs keep showing up in reported results even as adjusted earnings climb.
What Investors Are Paying for Growth
The stock trades at about 27 times estimated 2026 adjusted earnings. That is above the sector median of about 21.5, but a little below its own five-year average of about 28.7. Analysts’ consensus expects adjusted earnings per share to grow about 64% for 2026, which helps explain a premium to the sector.
That multiple sits below its history only if the growth shows up. If the third quarter lands short of the guide, the same price would look more expensive than it does now. If you’re looking for undervalued growth stocks, check out 10 Undervalued Growth Stocks to Buy Now.
Orders already on the books and a guide that already includes the step-up make delivery inside the range the likelier outcome. What will say more is whether management repeats on the call that demand extends into 2027, since the multiple depends on growth continuing past this quarter.
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This article is originally published at Insider Monkey.
