Onto Innovation, a provider of semiconductor process control, inspection, and metrology equipment, advanced 85% on strong advanced-packaging demand. This growth is indicative of the increasing importance of semiconductor technologies in the context of AI infrastructure demand, which is a significant driver for the sector. The company's performance reflects its critical role in the semiconductor supply chain, positioning it well for future growth as demand continues to rise.

We reentered the position in Onto Innovation following a prior exit driven by concerns that KLA’s growing scale could disrupt the competitive landscape. However, we have not seen a material deterioration in Onto’s competitive positioning. Our conviction has strengthened as Onto benefits from an early-stage recovery in its memory end market, driven by data center expansion and AI-related demand. We see this as the beginning of a potential memory supercycle, supporting accelerating growth, operating leverage and positive estimate revisions.

During the quarter, we exited our positions in Onto Innovation, Pure Storage, SPS Commerce, and Manhattan Associates. Our patience was not rewarded as growth rate expectations continued to decline. The relative underperformance of the technology sector was primarily driven by defensive software businesses lagging the market rally, and underexposure to more speculative areas of the sector, including small cap semiconductors, AI-hardware, and select 'story' stocks such as quantum computing, drones, and space exploration companies.

The letter discusses Onto Innovation in the context of portfolio adjustments due to market volatility. The manager mentions trimming their position in Onto Innovation as part of a strategy to reduce exposure to more cyclical positions, particularly those tied to AI spending trends. However, there is no explicit bullish or bearish argument made regarding the company's future prospects or valuation.

The letter discusses Onto Innovation in the context of portfolio adjustments due to market volatility. The manager mentions trimming their position in Onto Innovation as part of a strategy to reduce exposure to more cyclical positions, particularly those tied to AI spending trends. However, there is no explicit bullish or bearish argument made regarding the company's future prospects.

The letter discusses Onto Innovation in the context of portfolio adjustments but does not provide a specific investment thesis or directional argument regarding its future performance.