I Picked ON Semiconductor as My Top Stock for 2026. It's Up 53%, but Is It Still a Great Value?

Core Viewpoint - ON Semiconductor is positioned as an attractive investment due to recovering end markets, strong valuation, and growth in AI data center sales [1] Group 1: Company Performance - ON Semiconductor's shares have increased by 53% since being highlighted for 2026 and 31% year-to-date, indicating strong market interest [1] - The company has passed an inflection point, with sequential growth in automotive and industrial sales over the last two quarters, and industrial revenue returning to year-over-year growth [4][7] - Management's guidance for Q1 2026 projects revenue between $1.435 billion and $1.535 billion, marking the first expected year-over-year growth since the downturn began over three years ago [5] Group 2: Product Focus and Market Position - The company specializes in power and sensing chips, focusing on silicon carbide (SiC) and gallium nitride (GaN) chips, where it holds a leadership position [2] - SiC chips are ideal for electric vehicles, renewable energy, EV chargers, and industrial motors, while GaN chips are suited for AI data centers, EVs, and aerospace applications [2] Group 3: Financial Metrics and Valuation - In 2025, ON Semiconductor generated $1.4 billion in free cash flow, approximately 4.9% of its current market cap, with projections indicating at least 25% of revenue will convert to free cash flow in 2026 [8] - The stock trades at a forward price-to-free cash flow multiple of 18.1, considered low for a growth stock, indicating potential for further appreciation [8] - The company has initiated a three-year $6 billion share-repurchase program, enhancing shareholder value [8] Group 4: Market Opportunities and Risks - The company faces risks related to its exposure to Chinese EVs but has growth opportunities in AI data centers, which contributed $250 million to its $6 billion revenue in 2025 [9] - There are signs of improvement in the industrial sector and stabilization in EV spending, supporting the company's growth outlook [9]