B. Riley Just Upgraded On Semiconductor to Buy and Nearly Doubled Its Price Target. Is This the Chip Comeback of 2026?

B. Riley upgraded On Semiconductor to Buy from Neutral and raised its price target to $115 from $64, citing stabilization in end markets and execution in power semis, silicon carbide, and industrial exposure. Management guided Q1 2026 revenue to $1.435B-$1.535B and EPS to $0.56-$0.66, while free cash flow reached a record $1.418B in full-year 2025 and the company authorized a new $6B buyback. The call is constructive but tempered by high automotive/China exposure and geopolitical risk, with shares already trading around $98.

Analysis

The key change is not the higher target; it is the implied inflection in earnings power if the cycle is genuinely past trough. ON is one of the cleaner ways to express a rebound in industrial and auto silicon content because operating leverage is unusually steep once utilization and mix improve, so even modest revenue stabilization can compress the valuation gap quickly. That makes the stock more sensitive than peers to a few consecutive quarters of “good enough” execution rather than spectacular growth.

Second-order winners are likely to be upstream specialty materials and select equipment names if ON’s capex and inventory normalization continue, but the more important read-through is to EV and industrial supply-chain sentiment. If ON is calling stabilization in auto and industrial end markets, that argues for a broader re-rating of power semiconductor demand into 2026, especially for companies with exposure to electrification where content growth can offset unit softness. The flip side is that any disappointment would hit the group hard because positioning is already leaning toward a recovery narrative, and the stock’s rally has likely pulled forward a meaningful amount of that good news.

The main risk is that the market is mistaking stabilization for cyclical acceleration. With China/auto exposure still elevated, a relatively small demand wobble or tariff/geopolitical shock could quickly overwhelm margin recovery, especially if customers keep drawing down inventories rather than restocking. Near term, the most important catalyst is the next update on order trends and gross margin trajectory; if those do not improve sequentially over the next 1-2 quarters, the re-rating thesis becomes fragile.

Consensus may be underestimating how much buybacks can support downside, but also overestimating how fast the market will pay up for a recovery story while forward earnings are still normalizing. In other words, this is likely more of a 6-12 month earnings compounding trade than an immediate multiple expansion trade, and the right framework is to own it only if the stabilization thesis is confirmed rather than assumed.

Key Decisions for Investors

• Long ON on pullbacks over the next 1-2 weeks; target a 3-6 month horizon with upside tied to sequential stabilization and margin recovery, but use a tight stop if management commentary weakens on orders or auto demand.
• Pair trade: long ON / short a higher-quality, more fully valued analog peer basket for 3-6 months if you want cyclical beta without paying peak-cycle multiples; this isolates the recovery optionality while capping factor risk.
• Buy ON upside call spreads for the next earnings cycle; the setup favors convexity because a modest guide-up can force multiple expansion, while equity downside remains cushioned by buybacks.
• Avoid chasing the stock outright after a sharp rally; wait for post-print volatility because the market is pricing in a clean recovery, and any miss on utilization or China can create a 10-15% air pocket quickly.
• If holding existing semiconductor longs, use ON as a relative-value hedge against names more exposed to AI/data-center momentum, since ON is more cyclical and will likely lag if the broader market rotates away from industrial recovery.