Nvidia's GPUs are the more appealing story, but the advanced packaging company could be the next big AI growth story.
AI chip leader Nvidia (NVDA 1.27%) There is no doubt that we will see tremendous growth over the next year or more. But while chip designers like Nvidia and its competitors garner a lot of headlines, less-than-glamorous advanced packaging processes are actually a major bottleneck for today's AI.
That's why these two lesser-known advanced packaging technology stocks are poised to take off in 2025.
What is advanced packaging and why is it so important?
Packaging is the concept of connecting chips from different wafers to create a unified computing system. While traditional electronics packaging has been used to good effect in legacy applications such as PCs, smartphones, and industrial chip systems, today's AI systems require GPUs, CPUs, high bandwidth Requires memory (HBM), I/O controllers, and other elements. It relays information at lightning speed and as energy efficiently as possible. Meanwhile, virtually all major chipmakers have begun using “chiplets,” and the processors themselves are made up of different components fabricated on different wafers and tightly stitched together.
According to McKinsey, this requires new advanced packaging technologies that first appeared around 2000. However, the rapid growth of these new technologies is now beginning.
Currently, Nvidia's foundry and leader in AI chip manufacturing, taiwan semiconductor manufacturing, lacks advanced packaging capabilities. TSMC is triple The company's chip-on-wafer-on-substrate packaging capacity has increased from 45,000 to 50,000 wafers per month this year, but TSMC says packaging capacity is already reserved for the next two years. It is said that there are many. And when production of “AI PC” starts this year, intel According to Trendforce, the company recently found itself lacking advanced packaging capabilities for AI PC systems on chips.
to innovation
One way to take advantage of advanced packaging trends is to to innovation (ONTO 7.64%). Indeed, investors already have some sense of Onto's story, with the stock price rising more than 150% over the past year.But that growth runway should continue this decade.
On makes equipment for multiple chip manufacturing processes critical to AI. But the biggest growth area is Dragonfly wafer inspection tools for advanced packaging. These systems can help detect defects in chip packages, especially microcracks in the ultra-thin wafers currently used in high-density AI and chiplet packages.
In Onto's just-released first-quarter earnings, management noted that Dragonfly system revenue increased 30% compared to the previous quarter. Meanwhile, its entire Advanced Packaging division, which includes Dragonfly and Firefly inspection systems and JetStep packaging lithography equipment, grew 64% year over year.
While overall revenue increased only 14.9% last quarter, the Advanced Packaging and Specialty segment accounted for $161 million, or 70%, of Onto's $229 million in total revenue. Therefore, if advanced packaging continues its strong growth, Onto's growth could accelerate.
Not only that, Onto should also see significant advances from other sectors in metrology and test equipment for advanced logic and memory nodes. These segments have experienced significant downturns over the past two years, but should recover strongly. This is especially true for Onto, as gate-all-around (GAA) transistor technology is coming next year for advanced chip nodes. Onto's Atlas and Iris systems will capture a large share of the metrology market during the GAA transition.
Onto's financials are expected to accelerate again in 2025 as advanced packaging inspection continues its rapid growth and GAA technology emerges.
Cricke & Sofa
Unlike Ont, Cricke & Sofa (KLIC 0.33%) 's stock price hasn't risen sharply in the past year and has been essentially flat over the past 52 weeks.
This is probably because KILC's business is still dominated by the traditional ball bonder legacy packaging business, which will see a severe downcycle from mid-2022 onwards. While the sector is starting to recover, Kulicke & Soffa also services the electric vehicle (EV) battery packaging industry, which has taken a hit recently as the EV market slows. KLIC also serves the advanced display market, but its technology transition has just been postponed to the second half of the decade after a major next-generation project centered around microLED was canceled by a major customer.
Despite these headwinds, Kulicke & Soffa also has emerging areas in advanced packaging, thermocompression bonding (TCB) technology, and advanced wafer-level packaging. TCB is just starting to take off in a big way. In a recent conference call, management said the company is taking market share from competitors in the world's leading outsourced assembly and test (OSAT) and partnering with 10 of the world's leading foundries, OSATs and integrated device manufacturers for TCB. said.
KLIC's TCB revenue in 2023 was only $60 million, but in 2021 it was four times that amount. However, TCB and newer wafer-level packaging process technologies are on track to deliver combined revenues of $200 million by fiscal year 2025. Revenue for the past 12 months. Therefore, in 2025, these high-growth technologies will become a more important part of business.
Additionally, KLIC management noted that the company's new vertical fan-out technology can reduce the memory package form factor by approximately 40%. While the first applications have just been deployed for low-power DRAM, one of the company's customers has a roadmap to use his HBM's packaging technology for AI applications, which represents a huge opportunity for AI. Management pointed out that there is a possibility that
By 2025, these advanced processes should be back on track and the company's other legacy businesses, such as traditional ball bonding and automotive battery packaging, should also recover. With a 1.7% dividend and increased share buybacks, KLIC is very likely to be an AI laggard that will make a big comeback next year.