ON's AI Data Center Revenue Set to Double in 2026

What happened

Zacks reports that ON Semiconductor's AI data center revenues are poised to double in 2026, driven by traction for its advanced power solutions across EVs, energy storage, and industrial markets. However, the DeepValue report rates the stock a WAIT, noting that at ~$60, it trades at a stretched 77x trailing P/E and ~10x EV/EBITDA, with limited margin of safety given depressed but not distressed earnings. While AI power demand is a genuine tailwind, automotive and industrial end markets remain weak, with gross margins stuck below 40% and a structural manufacturing reset underway. The report sees a fragile rebound dependent on LTSA conversion and utilization recovery, preferring to wait for clearer evidence of sustained auto growth and margin expansion. Thus, the AI doubling headlines add incremental optimism but do not alter the cautious stance—execution and cyclical recovery remain the dominant variables.

Implication

The AI power growth supports the bull case but must be validated by broader margin recovery; investors should monitor for sustained auto revenue growth and gross margin improvement before adding. Without those, the stock remains overvalued.

Thesis delta

The news of AI data center revenue doubling incrementally supports the bull case but does not shift the base assessment. The report's thesis—that the stock is overvalued given cyclical headwinds and execution risk—remains intact. The key to changing the call remains sustained gross margin improvement above 42% and auto recovery, not AI alone.