ONTO Slides 13% in a Month: How Should Investors Play the Stock?

Core Viewpoint - Onto Innovation (ONTO) has experienced a stock decline of 12.8% over the past month, which is less severe than the Nanotechnology industry's decline of 14.2%, amidst escalating trade tensions and tariff issues affecting overall market performance [1]. Company Performance - ONTO stock closed at $120.47, which is 50% below its 52-week high of $238.93 reached on July 16, 2024, indicating potential investment opportunities or risks of a value trap [4]. - The company has shown strong performance throughout 2024, achieving its sixth consecutive quarter of growth, particularly in the AI-driven semiconductor packaging market, which saw a 180% year-over-year revenue increase [8]. - Advanced nodes have been a significant driver of revenue growth, with expectations of continued momentum into 2025, particularly in logic and memory segments [9]. Growth Drivers - The transition to 3D NAND technology is expanding Onto's market opportunities, supported by the launch of innovative products in 2024 [7]. - Demand for Iris film metrology has risen, with annual revenues approaching $100 million, and continued demand is expected in 2025 [10]. - Power revenues increased by 10% in 2024, driven by the development of advanced gallium nitride-based power semiconductors, which are gaining traction due to their efficiency [11]. Financial Projections - Management anticipates total revenues for the first quarter of 2025 to be in the range of $260-$274 million, with non-GAAP earnings per share projected between $1.40 and $1.54 [13]. - A seasonal dip is expected in the first quarter, followed by growth in subsequent quarters, aligning with trends observed in 2024 [12]. Challenges - Non-GAAP operating expenses rose to $68.4 million, a 21.4% increase year-over-year, primarily due to higher R&D investments, which could impact profitability if revenue growth stalls [14]. - The uncertain macroeconomic environment, geopolitical tensions, and intense competition pose risks to the semiconductor industry and ONTO's performance [15]. - ONTO's stock is trading at a premium with a forward 12-month price/earnings multiple of 18.03X compared to the industry's 3.70X, indicating potential valuation concerns [17].