AI chip chief Nvidia (NASDAQ: NVDA) will little question have very sturdy development over the following year-plus. However whereas the chip designers like Nvidia and its would-be rivals garner loads of headlines, the much less horny superior packaging course of is definitely right this moment’s massive AI bottleneck.
That is why these two under-the-radar superior packaging tech shares are primed to take off in 2025.
What’s superior packaging, and why’s it so vital?
Packaging is the idea of connecting chips from completely different wafers collectively to create a unified computing system. Whereas conventional electronics packaging has been used to good-enough impact for legacy functions like PCs, smartphones, and industrial chip techniques, right this moment’s AI techniques require GPUs, CPUs, high-bandwidth reminiscence (HBM), I/O controllers, and different components to relay info at lighting-fast pace and as energy-efficiently as potential. In the meantime, just about all main chipmakers are starting to make use of “chiplets,” during which the processor itself is constructed of various parts produced on completely different wafers, then intently stitched collectively.
That requires new superior packaging applied sciences, which first emerged across the yr 2000, in accordance with McKinsey. However hypergrowth for these newer applied sciences is now starting.
Presently, Nvidia’s foundry and chief in AI chipmaking, Taiwan Semiconductor Manufacturing, has a scarcity of superior packaging capability. TSMC will triple its chip-on-wafer-on substrate superior packaging capability this yr to 45,000 to 50,000 wafers per 30 days, but TSMC has stated that packaging capability is already totally booked for the following two years. And with “AI PC” manufacturing kicking on this yr, even Intel has lately discovered itself brief on superior packaging capability for AI PC techniques on a chip, in accordance with Trendforce.
Onto Innovation
One strategy to play the superior packaging pattern is Onto Innovation (NYSE: ONTO). To make sure, traders have already considerably caught on to the Onto story, with the fill up over 150% over the previous yr. However its development runway ought to final by this decade
Onto makes gear that serves a number of chipmaking processes essential for AI. However its highest-growth section is its Dragonfly wafer inspection instruments for superior packaging. These techniques assist detect imperfections in chip packages, particularly microcracks in ultrathin wafers presently being utilized in extremely dense AI and chiplet packages.
In Onto’s just-reported first-quarter earnings, administration famous that Dragonfly system income grew 30% simply over the prior quarter. In the meantime, the entire Superior Packaging section, which contains its Dragonfly and Firefly inspection techniques in addition to the JetStep packaging lithography gear, grew 64% over the prior-year quarter.
Whereas total income grew “solely” 14.9% final quarter, the Superior Packaging and Specialty section made up $161 million out of Onto’s $229 million whole income, or 70%. So if superior packaging continues its sturdy development, Onto’s development might speed up.
Not solely that, however Onto also needs to see a giant carry from its different segments in metrology inspection gear for superior logic and reminiscence nodes. These segments have been by a giant downturn over the previous two years, however they need to get well strongly. That is very true for Onto as gate-all-around (GAA) transistor expertise emerges subsequent yr for superior chip nodes. Onto’s Atlas and Iris techniques are prone to take important share in metrology amid the GAA transition.
As superior packaging inspection continues its fast development and GAA expertise emerges, search for Onto’s financials to reaccelerate in 2025.
Kulicke & Soffa
Not like Onto, Kulicke & Soffa (NASDAQ: KLIC) hasn’t seen its inventory surge over the previous yr, with its inventory nearly flat over the previous 52 weeks.
That is in all probability as a result of KILC’s enterprise continues to be dominated by the standard ball bonder legacy packaging enterprise, which has seen a extreme downcycle since mid-2022. Whereas that section is beginning to get well, Kulicke & Soffa additionally serves the electric-vehicle (EV) battery packaging trade, and that section has lately taken a success because the EV market has decelerated. KLIC additionally serves the superior show market, and it simply noticed a big next-gen venture round microLEDs cancelled by a giant buyer, pushing that expertise transition to later this decade.
Regardless of these headwinds, Kulicke & Soffa additionally has an rising section in superior packaging, thermocompression bonding (TCB) expertise, and superior wafer-level packaging. TCB is simply starting to take off in a giant manner. On the current convention name, administration famous it had taken share from rivals on the world’s main outsourced meeting and check (OSAT) and has engagements with 10 of the world’s main foundries, OSATs, and built-in system producers for TCB.
KLIC’s 2023 TCB income was simply $60 million, however 4 occasions the quantity in 2021. However TCB and newer wafer-level packaging processes methods are on observe to ship a mixed $200 million in income by fiscal 2025. For context, Kulicke had $736 million in trailing-12-month income. So in 2025, these high-growth superior applied sciences will make up a extra significant slice of the enterprise.
As well as, KLIC’s administration famous that its new vertical fan-out expertise can cut back the shape issue of reminiscence packages by some 40%. Whereas the primary functions are simply rolling out for low-power DRAM, administration famous that one in every of its clients has a roadmap to make use of the packaging expertise in HBM for AI functions, in order that may be a giant AI alternative.
In 2025, these superior processes ought to take off, and the corporate’s different legacy companies in conventional ball bonding and auto battery packaging also needs to get well. With a 1.7% dividend and an rising quantity of share buybacks, KLIC might very properly be an AI laggard that bounces again in a giant manner subsequent yr.
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Billy Duberstein has positions in Kulicke And Soffa Industries, Onto Innovation, and Taiwan Semiconductor Manufacturing. His purchasers might personal shares of the businesses talked about. The Motley Idiot has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends Intel and recommends the next choices: lengthy January 2025 $45 calls on Intel and brief Might 2024 $47 calls on Intel. The Motley Idiot has a disclosure coverage.
Nvidia Is Main the Synthetic Intelligence (AI) Cost, However These 2 Firms Are Rising Stars was initially printed by The Motley Idiot