Should You Invest in the AI Chip Stock That Has Doubled in Value in a Year?

Should You Invest in the AI Chip Stock That Has Doubled in Value in a Year?

The manufacturing of advanced semiconductors used in artificial intelligence (AI) systems is a complex and crucial process in the technology industry. One lesser-known but integral segment of this industry is metrology equipment, which plays a key role in ensuring the quality and functionality of these chips.

Leading the pack in metrology equipment providers is KLA Corp., with its stock showing an impressive 75% gain in the past year. However, a smaller competitor, Onto Innovation, has outperformed KLA with a nearly 105% increase in its stock value. This begs the question: why is Onto Innovation excelling, and should investors consider it as a viable investment option?

Metrology and process diagnostics and control (PDC) equipment are essential in the chip manufacturing process, guaranteeing that the chips are defect-free and function correctly. Companies like Taiwan Semiconductor Manufacturing and Intel heavily rely on metrology equipment to develop advanced manufacturing processes for their products. Thus, metrology equipment acts as a crucial step in building AI systems, serving as a gatekeeper to unlocking more powerful computing capabilities.

Onto Innovation, a result of a 2019 merger between two small metrology companies, has been making significant strides in the industry. The company has scaled up its operations, invested in new technologies, and expanded its product offerings to cater to the evolving needs of chip manufacturers. Recent equipment announcements from Onto Innovation indicate its commitment to addressing all stages of the chipmaking process, from wafer inspection to final packaging.

Despite Onto Innovation’s recent stock price surge, trading at high multiples of earnings per share and free cash flow, the company shows promise for future growth. Its cyclical nature, rebounding profitability, and strategic positioning in the semiconductor industry make it a potential investment opportunity. With the ongoing expansion of chip fab projects globally and the projected growth in demand for advanced wafer fab equipment, Onto Innovation is well-positioned to capitalize on these opportunities.

In conclusion, while Onto Innovation may not replicate its exceptional stock performance in the past year, it still holds potential for further growth. As a player in the metrology equipment sector supporting the booming AI chip market, Onto Innovation remains an attractive investment option for those looking to capitalize on the semiconductor industry’s growth trajectory. Investors may want to consider adding Onto Innovation to their portfolios for long-term potential gains in the evolving technology landscape.