The Chip War Nobody Can Afford to Ignore

There is a war being fought right now. No tanks. No missiles. No headlines on the nightly news. But its consequences could reshape the global economy for the next three decades — and the stock market is only beginning to price it in.

It is a war over semiconductors. And it is happening between the two largest economies on earth.

Market Temperature: Geopolitics Is Now a Valuation Input

For most of the last 30 years, investors could largely ignore geopolitics. Trade flowed freely. Supply chains were optimized for cost, not resilience. And the assumption was that economic interdependence between nations would keep conflict contained.

That era is over.

Since 2018, the United States has pursued an increasingly aggressive strategy to limit China’s access to advanced semiconductor technology. Export controls have been tightened. Dutch chipmaking equipment supplier ASML has been restricted from selling its most advanced lithography machines to Chinese buyers. And a wave of domestic manufacturing subsidies — most notably the CHIPS and Science Act, which allocated $52.7 billion to domestic semiconductor production — has signaled a fundamental policy shift: the U.S. is no longer willing to let the most critical technology inputs in the modern economy be manufactured predominantly overseas.

China, for its part, is not standing still. Beijing has committed hundreds of billions of yuan to building a self-sufficient domestic chip industry — with a stated goal of achieving 70% semiconductor self-sufficiency by 2025. That target has slipped, but the ambition has not.

The result is a bifurcating global technology ecosystem. Two parallel supply chains. Two competing standards. And a historic reallocation of capital toward companies that sit at the seams of this new geopolitical reality.

The Rising Star: Onto Innovation (ONTO)

When most investors think about the chip war, they gravitate toward the obvious names — Nvidia, TSMC, Intel. Those are valid conversations. But the more interesting opportunity, and the one less crowded with institutional capital, may lie one layer deeper in the supply chain.

Onto Innovation (NYSE: ONTO) is a semiconductor process control and inspection equipment company. In plain terms, it makes the machines that check whether chips are being made correctly — before they leave the fab. It is a quality control and metrology business embedded inside the most strategically important manufacturing sector in the world.

And right now, that positioning matters enormously.

Data-Driven Deep Dive

Onto Innovation was formed in 2019 through the merger of Nanometrics and Rudolph Technologies — two established players in semiconductor process control equipment. Since that merger, the combined entity has steadily grown its revenue, expanded margins, and deepened its footprint inside leading-edge fabs.

Here is what the data shows:

• Revenue trajectory: Onto generated approximately $1.03 billion in revenue in fiscal 2024, up from roughly $858 million the prior year — a growth rate that outpaces many of its semiconductor equipment peers.
• Gross margins: Gross margins have consistently held in the 49–51% range, reflecting the company’s pricing power and the mission-critical nature of its tools inside advanced manufacturing environments.
• Earnings growth: Non-GAAP earnings per share have grown substantially as the company has scaled, with analysts projecting continued EPS expansion through 2025 and 2026 as CHIPS Act-funded fabs begin ramping production.
• Customer base: Onto’s tools are used by the world’s leading semiconductor manufacturers, including customers in the advanced logic, DRAM, and advanced packaging segments — the exact areas receiving the most capital investment globally.
• Advanced packaging exposure: This is a critical detail. As chipmakers increasingly turn to advanced packaging techniques (3D stacking, chiplets, heterogeneous integration) to push past the limits of traditional Moore’s Law scaling, Onto’s inspection tools become even more essential. The complexity of advanced packaging dramatically increases the need for in-process metrology and defect detection.

The company carries a clean balance sheet with no significant long-term debt, a meaningful cash position, and a consistent pattern of share buybacks — all hallmarks of a management team that operates with financial discipline.

Why This Stock Matters Right Now

The CHIPS Act is not just a subsidy. It is a multi-year capital deployment program that is physically building new semiconductor fabs on American soil. TSMC’s Arizona facilities. Intel’s Ohio expansion. Samsung’s Texas plant. Each of these fabs requires process control equipment at every stage of production. Each one represents years of tool procurement demand.

Onto Innovation is one of the relatively small number of U.S.-headquartered companies that manufactures this type of critical equipment. That gives it a strategic and commercial advantage in an environment where domestic sourcing is increasingly preferred — and in some cases, mandated.

At the same time, the broader semiconductor equipment market is entering what many analysts expect to be a multiyear upcycle. Global wafer fab equipment (WFE) spending, which contracted in 2023 due to inventory corrections and macroeconomic softness, appears to be recovering. Leading indicators — including orders from memory and logic customers, as well as capital expenditure guidance from major foundries — suggest a meaningful rebound in WFE spending through 2025 and 2026.

For a company like Onto Innovation, which derives revenue directly from equipment installations at active fabs, a rising WFE spending environment is a direct tailwind.

“The companies that make the machines that make the chips may ultimately capture more durable value than the chip designers themselves — because they serve every customer in the ecosystem, regardless of who wins the architecture wars.”

The Geopolitical Angle Most Investors Are Missing

Here is the layer of this story that most retail investors are not fully pricing in.

As the U.S. restricts China’s access to advanced semiconductor equipment, China is simultaneously accelerating its effort to build indigenous chipmaking capability at less advanced nodes — the 28nm, 40nm, and 65nm process technologies where U.S. export controls are less restrictive. This represents a massive buildout of fab capacity inside China using equipment that is still permissible to sell there.

For Onto Innovation, this dynamic creates a nuanced but real opportunity. The company does have China exposure in its revenue base — as do virtually all semiconductor equipment companies. The key question is whether that exposure is concentrated in the restricted categories (advanced logic below certain gate sizes) or in the broader, less-restricted market. Management has indicated it continues to serve China for non-restricted applications, a revenue stream that remains intact even as the policy environment tightens around cutting-edge nodes.

Meanwhile, the real structural driver is the West. As the U.S., Japan, South Korea, and European Union all commit to reshoring semiconductor manufacturing for national security reasons, the total addressable market for equipment like Onto’s expands materially. This is a multi-decade demand story, not a one-quarter catalyst.

Risks Worth Watching

No honest analysis ignores the downside. Here are the risks a thoughtful investor should monitor:

• Customer concentration: Like most semiconductor equipment companies, Onto derives a significant portion of revenue from a relatively small number of major customers. A spending pause or strategic pivot at one of those customers could create near-term revenue volatility.
• Cyclicality: The semiconductor equipment market is cyclical. Even within a long-term upcycle, there are quarters of uneven order flow. Investors with short time horizons may experience volatility.
• China policy risk: Further tightening of U.S. export controls — particularly if restrictions are extended to legacy nodes — could reduce Onto’s China-addressable market faster than anticipated.
• Competitive landscape: KLA Corporation and Applied Materials are significantly larger competitors with deeper resources. While Onto competes effectively in its niches, scale remains a differentiator in this industry.
• Valuation sensitivity: Like many quality industrial technology companies, Onto often trades at a premium to the broader market. Any deterioration in earnings expectations or macro sentiment could compress multiples quickly.

The Big Picture

Semiconductors are no longer just a technology industry story. They are a national security story. An economic sovereignty story. A story about which nations will control the infrastructure of artificial intelligence, autonomous systems, advanced communications, and modern warfare.

That shift in how governments and corporations think about chip supply chains is not a temporary reaction to a trade dispute. It is a structural realignment that will play out over years — and it will require trillions of dollars in capital investment to execute.

Every new fab that breaks ground in the United States, Japan, Germany, or South Korea needs process control equipment. Every advanced packaging line that comes online needs metrology tools. The companies that manufacture those tools — the unsexy, under-the-radar enablers of the chip economy — may represent some of the most durable investment opportunities of this decade.

Onto Innovation is one name worth having on the radar.

Final Thought

The chip war between the U.S. and China is often framed as a story about who wins and who loses in global technology leadership. That framing, while accurate, is too narrow for the investor who wants to find value in the noise.

The deeper story is about infrastructure. Every time a government writes a check to build a new semiconductor fab, every time an advanced packaging line comes online, every time a chipmaker tries to push the limits of what silicon can do — there are a handful of companies sitting quietly in the middle of that process, providing tools that cannot be avoided.

That is where durable value tends to accumulate. Not in the loudest names. In the essential ones.

Onto Innovation may not be a household name. But in a world where chips are geopolitical weapons, the companies that make the machines that make those chips correctly — that is a business worth understanding.

— The Rising Star Stocks Editorial Team