Are you looking for a hot semiconductor stock to add to your portfolio? Look no further than ON Semiconductor (NASDAQ: ON). Following a strong second-quarter earnings report, this stock has outperformed Nvidia in the last month, with a 14.2% increase compared to a 5.4% decline for the market darling. But why is ON Semiconductor gaining traction, and can this trend continue?
ON Semiconductor serves two highly cyclical end markets: automotive and industrial. Both of these markets have seen declines this year for various reasons, as illustrated by a sequential revenue decline trend since the third quarter of 2023. However, recent guidance from management indicates a potential bottoming process with a sequential increase in revenue expected in the third quarter.
This outlook has caught investors’ attention, especially considering the semiconductor industry’s cyclical nature. The optimal time to buy cyclicals is often during their low points, making ON Semiconductor an attractive choice right now. Additionally, the growing demand for high-performance computing chips in AI applications could drive further growth for the company.
But what about ON Semiconductor’s path to recovery? While some investors may hope for a V-shaped recovery, CEO Hassane El-Khoury has forecasted an “L-shaped curve” recovery. This means that revenue growth may be gradual, rather than rapid and dramatic.
To add to the company’s potential, ON Semiconductor recently secured a partnership with Volkswagen Group to supply a complete power box solution for its next-generation traction inverter. This indicates promising growth opportunities in the electric vehicle market. Furthermore, as industrial automation becomes more prevalent, the demand for ON Semiconductor’s products is likely to increase.
Despite short-term uncertainties, ON Semiconductor’s long-term growth potential is undeniable. Whether it’s an L-shaped or V-shaped recovery, the company’s valuation looks attractive compared to Wall Street’s earnings estimates for 2024. With a focus on intelligent power solutions and sensing chips in EVs, ON Semiconductor is positioned for success in the evolving tech landscape.
Before you consider investing in ON Semiconductor, it’s worth noting that the Motley Fool Stock Advisor team has identified 10 other stocks with significant growth potential. While ON Semiconductor might not be on their list, these top picks could deliver impressive returns in the coming years.
In conclusion, ON Semiconductor’s recent performance and growth prospects make it a compelling choice for investors seeking exposure to the semiconductor industry. Keep an eye on this stock as it continues to outperform Nvidia and explore the potential opportunities it offers for long-term growth in your portfolio.