Onto Innovation Is a Sleeper Stock That Can Rally 85%: Portfolio Manager
Summary
But as the process of shrinking transistors has become more costly and challenging (and actually detrimental to performance due to data leakage when it comes to NAND), the industry has been relying on three additional means by which to continue to aid the progression: vertical scaling, advanced packaging, and new materials. Listen to a Lam or even an Applied Materials earnings call and you’ll hear increasing emphasis given to their software and AI-enabled services used to maximize tool uptime and make sure their WFE operates consistently at optimal levels. Further, given the market position of Onto’s product suite, I think it would be “red meat” for any Tier 1 buyer, particularly Lam (which would get a smaller version of the KLA they tried to purchase), ASML, or Applied Materials. Given the strong secular growth outlook for the sector (combined with increasing recognition of how strategic semi manufacturing is for major Asian countries, the U.S., and Europe), WFE stocks as a rule should be trading at a premium to the market, not a discount. But things can change, and there’s no question that Trump’s mercurial brinksmanship with China, where semis were a key weapon in his arsenal, caused a negative overhang on WFE manufacturer valuations.