As Electric Vehicle Demand Grows, Bank Of America Sees This Chipmaker Rallying Over 25%

Bank of America has predicted that On Semiconductor, one of the top chip stocks for autos, could rise by over 25% in the near term.

‍

On Semiconductor has been named a top autos pick by analyst Vivek Arya, and he reiterated a buy rating on the stock following what he described as a "confident" management presentation this week. The news came on top of the news that On Semiconductor had signed a long-term deal with BMW to supply electric vehicles to the automaker.

‍

"This win is in addition to ON's other notable wins at Tesla, Mercedes, Jaguar Land Rover, VW, Hyundai, and Nio," Arya wrote in a note that was distributed on Tuesday. “On and several other peers, including TXN, MCHP, and WOLF, have affirmed that auto semis remain one of the bright spots of the industry despite macro headwinds impacting consumer and computing markets.”

‍

On Semiconductor, shares are up by nearly 26% in 2023, following a year in which the company also outperformed last year, despite a drop of 8% in share price. There is, however, a possibility that shares can climb another 27% from Tuesday's close if the analyst's new $100 price objective is raised from $90. There is an increase of about 0.4% in the stock price in pre-market trading on Wednesday.

‍

This is because the auto sector is still a strong growth theme, due to the adoption of battery-powered EVs and the related infrastructure for charging them that drives demand for semiconductors, according to the analyst.

‍

“Our expectation is that ON will maintain/expand its 25-30% share of the SiC device market in CY23E, as well as benefit from its leadership position in image sensors for advanced driver assistance systems,” Arya wrote in an analyst note.

‍

It has also come to the analyst's attention that at the firm's investor day, Tesla's engineering leader, Colin Campbell, had said he plans to reduce the use of silicon carbide (SiC) transistors in Tesla's next-generation vehicle powertrains. Stocks of chipmakers, including On Semiconductor, fell as a result of these comments.

‍

In spite of this, the note indicated that those comments were based on lower-end models, rather than higher-end models. As per the analyst, the impact of any hit would be offset by the faster adoption of electric vehicles.

‍