Morgan Stanley has begun coverage of Onto Innovation, the US-based semiconductor inspection and metrology specialist, with an overweight rating, sending the company's shares higher in early trading. The investment bank's analysts pointed to the firm's strong position in advanced process control tools, which are increasingly critical as chipmakers push towards smaller geometries and more complex manufacturing processes.
Onto Innovation, headquartered in Wilmington, Massachusetts, provides optical inspection and metrology systems used in the production of semiconductors. The company's tools help manufacturers detect defects and ensure yield quality, a role that has grown in importance as the global semiconductor industry invests heavily in new fabrication plants. Morgan Stanley's analysts believe Onto Innovation is well placed to benefit from this capital expenditure cycle.
The overweight rating from a major Wall Street bank adds to a series of positive analyst notes on the semiconductor equipment sector this year. Demand for chips used in artificial intelligence, data centres, and automotive applications continues to drive orders for manufacturing gear. However, the sector remains cyclical, and some investors are wary of a potential slowdown in consumer electronics demand.
For UK investors with exposure to technology-focused funds or exchange-traded funds, the endorsement may provide reassurance about the broader semiconductor supply chain. Many UK pension funds hold indirect stakes in US tech companies through global equity trackers. The semiconductor equipment sub-sector has outperformed the wider market over the past 12 months, though volatility remains elevated.
Analysts at Morgan Stanley noted that Onto Innovation's revenue growth and margin expansion are supported by long-term trends such as the proliferation of connected devices and the shift to electric vehicles. They cautioned, however, that geopolitical tensions and export controls could pose risks to the industry's outlook. Source: Morgan Stanley research note.