AI chip chief Nvidia (NASDAQ: NVDA) will little doubt have very sturdy development over the subsequent year-plus. However whereas the chip designers like Nvidia and its would-be rivals garner a variety of headlines, the much less horny superior packaging course of is definitely at present’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 programs, at present’s AI programs require GPUs, CPUs, high-bandwidth reminiscence (HBM), I/O controllers, and different parts to relay info at lighting-fast pace and as energy-efficiently as doable. In the meantime, nearly 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 carefully 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.
At the moment, 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 mentioned that packaging capability is already totally booked for the subsequent two years. And with “AI PC” manufacturing kicking on this yr, even Intel has not too long ago discovered itself quick on superior packaging capability for AI PC programs on a chip, in accordance with Trendforce.
Onto Innovation
One strategy to play the superior packaging pattern is Onto Innovation (NYSE: ONTO). To make certain, buyers have already considerably caught on to the Onto story, with the refill over 150% over the previous yr. However its development runway ought to final by way of this decade
Onto makes tools 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 programs assist detect imperfections in chip packages, particularly microcracks in ultrathin wafers at the moment 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 includes its Dragonfly and Firefly inspection programs in addition to the JetStep packaging lithography tools, grew 64% over the prior-year quarter.
Whereas general income grew “solely” 14.9% final quarter, the Superior Packaging and Specialty section made up $161 million out of Onto’s $229 million complete income, or 70%. So if superior packaging continues its sturdy development, Onto’s development may speed up.
Not solely that, however Onto also needs to see a giant raise from its different segments in metrology inspection tools for superior logic and reminiscence nodes. These segments have been by way of a giant downturn over the previous two years, however they need to get better strongly. That is very true for Onto as gate-all-around (GAA) transistor know-how emerges subsequent yr for superior chip nodes. Onto’s Atlas and Iris programs are prone to take vital share in metrology amid the GAA transition.
As superior packaging inspection continues its fast development and GAA know-how 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 most likely as a result of KILC’s enterprise remains 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 better, Kulicke & Soffa additionally serves the electric-vehicle (EV) battery packaging trade, and that section has not too long ago taken successful because the EV market has decelerated. KLIC additionally serves the superior show market, and it simply noticed a big next-gen undertaking round microLEDs cancelled by a giant buyer, pushing that know-how transition to later this decade.
Regardless of these headwinds, Kulicke & Soffa additionally has an rising section in superior packaging, thermocompression bonding (TCB) know-how, and superior wafer-level packaging. TCB is simply starting to take off in a giant method. On the current convention name, administration famous it had taken share from rivals on the world’s main outsourced meeting and take a look at (OSAT) and has engagements with 10 of the world’s main foundries, OSATs, and built-in gadget producers for TCB.
KLIC’s 2023 TCB income was simply $60 million, however 4 instances the quantity in 2021. However TCB and newer wafer-level packaging processes strategies 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 good portion of the enterprise.
As well as, KLIC’s administration famous that its new vertical fan-out know-how 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 prospects has a roadmap to make use of the packaging know-how in HBM for AI functions, in order that is also 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 better. With a 1.7% dividend and an rising quantity of share buybacks, KLIC may very nicely be an AI laggard that bounces again in a giant method subsequent yr.
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Billy Duberstein has positions in Kulicke And Soffa Industries, Onto Innovation, and Taiwan Semiconductor Manufacturing. His shoppers 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 quick 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 revealed by The Motley Idiot
