ON Semiconductor Stock Soars 60% in 3 Months: Still a Smart Bet?

ON Semiconductor Corporation ON has been one of the semiconductor sector’s strongest performers lately, with the stock surging 60.1% over the past three months, compared with the industry’s rise of 29.2%. The rally has been fueled by a combination of improving cyclical demand, accelerating artificial intelligence data-center opportunities and rising confidence that the company has moved beyond the worst phase of the semiconductor downturn.Investors were especially encouraged by ON Semiconductor’s first-quarter 2026 results, where both revenues and earnings exceeded expectations while management projected stronger growth ahead.A major driver behind the stock’s sharp rise has been the company’s growing exposure to AI infrastructure. During the earnings call, management highlighted that AI data-center revenues surged more than 30% sequentially in the first quarter and are expected to double year over year in 2026.The company is benefiting from demand for power-management chips used across AI servers, hyperscale data centers and next-generation power systems. Management also noted that ON Semiconductor is engaged with major hyperscalers and multiple XPU vendors, strengthening investor confidence that it is emerging as a serious AI infrastructure beneficiary. At the same time, improving order trends, rising lead times and stronger automotive demand signals convinced the market that the company has likely passed the cyclical bottom.In the same time frame, ON has outperformed other industry players like Analog Devices, Inc. ADI and Texas Instruments Incorporated TXN, as shown in the chart.Price PerformanceImage Source: Zacks Investment ResearchAre ON’s Fundamentals Strong Enough to Support More Upside?Despite the strong rally, ON Semiconductor’s long-term fundamentals still appear attractive. ON has transformed itself over the last few years from a broad commodity-chip supplier into a focused power and sensing semiconductor company targeting high-growth markets like EVs, AI data centers, industrial automation and energy infrastructure.One of ON Semiconductor’s biggest strengths lies in automotive semiconductors, which remain its largest revenue contributor. Automotive revenues reached $797 million in the first quarter and returned to year-over-year growth after seven quarters of decline. The company continues to benefit from increasing semiconductor content inside electric vehicles, especially in China, where EV adoption remains strong. Management stated that ON Semiconductor’s silicon carbide technology accounted for roughly 55% of new EV models showcased at the 2026 Beijing Auto Show.The company is also gaining traction in next-generation vehicle architectures. Its Treo platform is increasingly being adopted for zonal vehicle networks, advanced driver-assistance systems and software-defined vehicle applications. Management revealed that Treo revenues increased more than 2.5 times sequentially during the quarter as customer adoption accelerated. Importantly, these products carry substantially higher margins than traditional semiconductor offerings, which could significantly improve profitability over time.AI infrastructure is becoming another critical growth engine. ON Semiconductor is positioning itself across the entire AI power chain, from high-voltage power conversion to intelligent power stages and system-level integration. The company believes the AI boom will not only increase demand inside data centers but also create a “halo effect” across adjacent markets like energy storage systems and renewable power infrastructure.Another positive factor is ON Semiconductor’s improving profitability profile. Gross margin expanded for the third straight quarter to 38.5%, even in a still-recovering demand environment. Management expects margins to improve further throughout 2026 as utilization rates rise, manufacturing efficiencies improve and higher-margin products contribute a larger share of revenues. The company also highlighted that Treo products could eventually generate gross margins in the 60-70% range, potentially becoming a major earnings driver in future years.Financially, the balance sheet remains healthy. ON Semiconductor ended the quarter with approximately $2.4 billion in cash and short-term investments while continuing aggressive share repurchases. During the quarter, the company repurchased $346 million worth of stock, signaling management’s confidence in the business outlook.Still, risks remain. Automotive demand in Europe remains sluggish, and the semiconductor industry is inherently cyclical. The stock’s sharp run-up also means expectations are now significantly higher. Any slowdown in AI spending, weaker EV demand or delayed industrial recovery could trigger volatility.ON’s Bottom Line ImprovesON’s earnings estimates for 2026 have increased in the past 30 days. The company is expected to deliver adjusted earnings per share of $3.09 in 2026, compared with the reported figure of a $2.35 in 2025. ON’s top line in 2026 is likely to witness growth of 8%. Image Source: Zacks Investment ResearchOn the other hand, Analog Devices and Texas Instruments earnings in the current year are likely to witness growth of 45.7% and 41.1% year over year, respectively.ON Trades at a DiscountON is trading at a discount on a forward 12-month price-to-sales (P/S) ratio basis. Its forward 12-month P/S ratio stands at 6.58X, lower than the industry. This indicates that despite the recent stock price increase in the past three months, it remains an attractive option for investors looking for a discounted entry point.ON P/S Ratio (Forward 12 Months)Image Source: Zacks Investment ResearchWrapping UpON appears to be strengthening its position as a key semiconductor player by focusing on fast-growing areas such as AI infrastructure, electric vehicles and advanced power solutions. The company is benefiting from rising demand for energy-efficient chips used in data centers, automotive applications and industrial automation, while its shift toward higher-margin products is improving profitability and operational performance.ON Semiconductor’s growing traction in silicon carbide technology and next-generation vehicle architectures also highlights its ability to capitalize on long-term industry trends. Investors may consider the stock because the company combines innovation, improving business momentum, solid financial management and exposure to multiple secular growth drivers, which could support sustained growth over the long run.The company currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.9% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>This article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks