Applied Materials AMAT and Onto Innovation ONTO are key players in the semiconductor supply chain, both offering comprehensive solutions for metrology and inspection for ensuring precision, yield, and process control across semiconductor manufacturing.
With the artificial intelligence (AI) boom to continue driving growth for the semiconductor industry, the question remains: Which stock is a better investment pick today? Let’s break down their fundamentals, growth prospects, market challenges and valuation to determine which offers a more compelling investment case.
The Case for AMAT Stock
Applied Materials is a major manufacturer of semiconductor fabrication equipment, covering deposition, etching, inspection and metrology, serving the most crucial stages of chip manufacturing.
AMAT has a robust lineup of eBeam, optical and wafer inspection systems that include PROVision 3E, PrimeVision 10, SEMVision G10, VeritySEM 10, Enlight Optical Inspection, Aera 6 Mask Inspection and NanoSpec 9000i Integrated Metrology Solutions that provide deep expertise in the semiconductor and metrology space.
To advance the capabilities of its inspection solutions, Applied Materials has integrated artificial intelligence-based image recognition functionalities with the industry’s most sensitive electron beam technology and launched SEMVision H20. This will improve and speed up the analysis of latent nanoscale defects in advanced chips.
Applied Materials also specializes in superior chip design, including Gate-All-Around Transistors, High-Bandwidth Memory chips and advanced packaging. As the demand for AI grows, AMAT’s portfolio of superior chips will also be boosted.
In fiscal 2024, AMAT’s revenues from advanced semiconductor nodes crossed $2.5 billion and the management expects this figure to double in fiscal 2025. These factors are driving AMAT’s financial performance. The Zacks Consensus Estimate for AMAT’s fiscal 2025 revenues is pegged at $28.8 billion, indicating year-over-year growth of 6%. The Zacks Consensus Estimate for AMAT’s fiscal 2025 revenues is pegged at $9.46, indicating a year-over-year increase of 9.4%.
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The Case for ONTO Stock
Onto Innovation provides metrology and inspection solutions like automated and integrated metrology systems, macro defect and silicon wafer All-surface Inspection, automated defect classification and pattern analysis tools, opaque film metrology solutions and advanced packaging services.
Onto Innovation’s 3Di bump metrology solution is experiencing increased traction driven mainly by the increased demand for complex and tightly integrated AI chip packages. However, not all of ONTO’s inspection solutions are able to fully meet the customer needs for 2.5D AI packaging, resulting in short-term loss of tool slots to its competitors.
Moreover, as Onto Innovation earns a significant part of its revenues from China, with fiscal 2024 revenues from China contributing 10% of total revenues, the recent U.S.-China tension raises investors’ concern for the stock’s prospects in the near term.
The Zacks Consensus Estimates for Onto’s 2025 revenues is pegged at $992.6 million, indicating year-over-year growth of 0.53%. The Zacks Consensus Estimate for Onto’s 2025 revenues is pegged at $5.14, indicating a decline of 3.75%.
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Stock Price Performance and Valuation of AMAT and LRCX
In the past three months, shares of Onto Innovation have sharply plunged 29.4% while Applied Materials shares gained 5.8%.
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Both AMAT and ONTO are trading at forward 12-month price-to-sales multiples of 4.36X and 4.57X, respectively, below the Zacks Computer and Technology sector’s average of 6.21X. However, AMAT is relatively cheaper than ONTO.
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Conclusion: AMAT vs. ONTO
Both AMAT and ONTO are essential players in the inspection and metrology space, but AMAT has a stronger growth profile as it is equipped with the right capabilities to serve AI workloads, while ONTO is losing against the competition.
Furthermore, AMAT’s reasonable valuation and solid fundamentals make the stock worth holding, whereas ONTO currently appears less attractive due to weaker growth projections and a less favorable valuation.
AMAT carries a Zacks Rank #3 (Hold), giving it a clear edge over ONTO, which has a Zacks Rank #5 (Strong Sell) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Today, See These 5 Potential Home Runs >>Applied Materials, Inc. (AMAT) : Free Stock Analysis Report
Onto Innovation Inc. (ONTO) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
