Onto Innovation (ONTO) is well-positioned to benefit from a strong wafer fab equipment spending cycle, rising process control intensity, and market-share gains, RBC Capital Markets said in a Friday research note.

Wafer fab equipment spending is expected to grow about 30% in 2026 and more than 35% in 2027, with generative artificial intelligence as the primary driver, RBC said, adding that it expects Onto Innovation's systems revenue to outgrow wafer fab equipment spending through 2028.

Additionally, the company has a leading share in advanced packaging inspection, and its advanced packaging business is poised to grow 80% this year, owing to strong demand for high-bandwidth memory, or HBM, and chip-on-wafer-on-substrate, or CoWoS, as well as the ramp-up of the company's new Dragonfly G5 product, the note said.

With Onto Innovation growing its share in advanced-node metrology, RBC said it expects the segment to grow at least in line with wafer fab equipment this year and next, with Dragonfly G5 providing further upside potential.

RBC initiated coverage of Onto Innovation with an outperform rating and a $400 price target.

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