Jefferies upgrades Onto on 2026 rebound, CoWoS share recovery

Jefferies upgraded Onto Innovation to Buy, projecting a revenue rebound in the second half of 2026 after bottoming early next year, driven by the company's potential to regain CoWoS chip packaging market share with new Dragonfly G5 inspection tool shipments commencing mid-2026. The brokerage cited tighter memory markets, new accelerator builds, and the pending Semi Lab acquisition, which is expected to add over 10% to EPS, despite a temporary HBM4 qualification headwind in H1 2026. Jefferies subsequently raised its 2026 and 2027 EPS forecasts and increased its price target to $170.

Analysis

Jefferies has upgraded Onto Innovation (ONTO) to a Buy rating, projecting a significant turnaround after a challenging 2025. The core of the thesis rests on revenue bottoming in early 2026 and re-accelerating in the second half, driven by the company's ability to regain lost market share in CoWoS chip packaging from rival KLA (KLAC). This recovery is contingent on the new Dragonfly G5 inspection tool, which addresses prior yield issues and is expected to begin shipments by mid-2026. While Samsung's HBM4 qualification with Nvidia is forecasted to create a sales headwind in the first half of 2026, Jefferies views this as a temporary delay before stronger demand materializes. The outlook is further bolstered by the pending $130 million acquisition of Semi Lab, which is expected to be over 10% accretive to earnings per share. In light of these catalysts, the brokerage has increased its 2026 and 2027 EPS estimates to $5.55 and $7.08, respectively, and established a $170 price target, valuing the stock at 24 times its 2027 earnings forecast.

Key Decisions for Investors

• Investors should consider the anticipated revenue softness in H1 2026 as a potential entry or accumulation window, as the bull case is predicated on a back-half weighted recovery and a multi-year growth story into 2027.
• Monitor two key execution milestones: the successful market adoption of the Dragonfly G5 tool post-mid-2026, which is critical for the market share recovery thesis against KLA, and the seamless closure and integration of the accretive Semi Lab acquisition.
• Evaluate positions in ONTO within the context of the semiconductor equipment cycle, as the $170 price target is based on a forward earnings multiple (24x 2027 EPS) that requires successful execution on new product launches and market share gains.