Onto Innovation Inc. (NYSE:ONTO) saw its stock price surge 7.5% in afternoon trading on Thursday, bringing shares closer to the conversion price of its recently issued $1.5 billion zero-coupon convertible notes. The rally narrowed the gap to a key financing milestone, though the stock still trades below the level that would trigger conversion or redemption.
Shares climbed $24.19 to $346.43 by 1:50 p.m. EDT, after reaching an intraday high of $353.15. The move outpaced semiconductor ETFs, with the iShares Semiconductor ETF (NASDAQ:SOXX) rising 3.9%, the VanEck Semiconductor ETF (NASDAQ:SMH) gaining 2.8%, and the Invesco QQQ Trust (NASDAQ:QQQ) up 0.6%. The Philadelphia Semiconductor Index also posted gains, buoyed by a record jump in Micron Technology Inc. (NASDAQ:MU) shares following its earnings report.
The conversion price of $381.80 is tied to the company's 0.00% convertible senior notes due 2031, issued in May. The conversion rate is 2.6192 shares per $1,000 of principal. At the current price, ONTO trades 10.2% below that level. A pre-2031 conversion trigger could activate after the quarter ending September 30, 2026, if the stock closes above 130% of the conversion price—approximately $496.34—for 20 out of 30 consecutive trading days. That target is 43.3% above Thursday's close.
The capped call transaction, designed to limit dilution, sets a cap price at $509.06 per share, just 2.6% above the 130% trigger. According to the SEC filing, the capped calls aim to offset any cash payout above the note principal up to that cap. The maximum make-whole share issuance is 5.89 million shares, or 11.8% of the diluted weighted average share count of 50 million, before anti-dilution adjustments or the capped calls.
Analyst sentiment remains bullish, with 11 Buy ratings and no Holds or Sells, according to Google Finance. The average one-year price target is $358.82, just 3.6% above current levels. The highest target stands at $450, still below the 130% trigger. This suggests that while Wall Street sees upside, it does not anticipate a rapid move to the conversion price in the near term.
Onto Innovation's recent financial performance supports the stock's momentum. The company reported first-quarter revenue of $291.9 million, up 9.5% year-over-year, and guided for second-quarter revenue between $320 million and $330 million. CEO Mike Plisinski cited "positive customer response" to the Dragonfly G5 inspection system and the Atlas G6 metrology platform. The Dragonfly G5, qualified for advanced 2.5D packaging, is seeing first shipments in June, with demand described as a "meaningful increase."
For the quarter ending June 30, Onto expects non-GAAP diluted EPS of $1.65 to $1.73 and a non-GAAP operating margin between 28% and 28.6%. The company also used approximately $205 million of note proceeds to repurchase 805,325 shares at $254.53 each, further supporting the stock.
The broader semiconductor rally, driven by Micron's strong results and positive commentary on AI supply chain pricing, has lifted ONTO along with the sector. Ben Barringer, head of technology research at Quilter Cheviot, noted that "supply visibility and continued tightness support pricing" across the AI supply chain, a tailwind for companies like Onto Innovation.
With the stock now within striking distance of the conversion price, investors will be watching closely for any sustained move above $381.80, which could trigger conversion and potentially dilute existing shareholders. For now, the company's strong product demand and robust guidance provide a solid foundation for further gains.
