ON Semi Joins Top Chip Picks As Tesla Gains And Allegro Deal Signal Upside

Following his industry update report, BofA Securities analyst Vivek Arya spotlighted his three diversified semiconductor top picks on Friday.

Recovery processes will be staggered and related to company-specific exposures. Still, the bottom seems to be near for most, with industrial semiconductors leading the way (improving PMIs, Europe re-industrialization) and auto semiconductors following in the second half of 2025 if/when OEM/EV production data points improve.

Also Read: Tariff Fears And Ease In Demand Hype Slows Semiconductor Expansion

Arya acknowledged lingering risks around tariffs and economic contraction but noted that diversified stocks are defensive and tend to outperform when SOX declines >10%.

In order from “lower beta” in recovery to “higher beta,” Arya’s top picks are Analog Devices, Inc ADI ($280 price target), NXP Semiconductors NXPI ($235 price target), and ON Semiconductor Corp ON $60 price target.

The top analog/industrial-semi pick is ideal for defensive exposure as Analog Devices has outperformed the PHLX Semiconductor Sector 23 out of the last 29 times the index declined +10% since 2010. Higher confidence in the second half of 2025 recovery supported by the analog semiconductor market returning to growth (according to SIA data) and sequential KPI improvement. FIFO recovery – consensus expects Analog Devices to rebound fastest in calendar 2025 at +13% sales growth (peers -15% to +10%).

Using the fiscal 2018 and 2019 baselines, Analog Devices’ industrial sales are still 15-20% below the trend, leaving upside headroom. The superior free cash flow generation with a line of sight to 37% margins in fiscal 2025, well above peers’ average of 17%, while buybacks may double with $10 billion new authorization.

Arya liked the relatively benign sales peak-to-trough correction to date at -18%, tied with Infineon for the shallowest downcycle thus far among peers, indicating prudent execution. The multiple NXP Semiconductors-specific product cycles make up ~40% of auto sales and accelerate growth in recovery, including software-defined vehicle products. The recent acquisitions of Kinara, TTTech, and Aviva Links enhance the total portfolio value proposition.

ON Semiconductor has weathered a -30% drawdown year-to-date, but as per Arya, the stock setup is compelling, given high leverage to any improvement in Auto/EV sentiment. Estimates reset hard post-fourth-quarter earnings, now show calendar 2025 sales down -15%, below peers ranging from -13% to +13%.

Even with tariff and demand uncertainty, much seems baked in. The steady Silicon carbide share gains at Tesla Inc TSLA and intense exposure at China EVs where 800v demand reflecting.

Allegro MicroSystems, Inc ALGM deal, if secured, may deliver 4%-7% accretion by calendar 2027 while augmenting the sensor portfolio. Despite the downturn, free cash flow % could improve to mid-20% from calendar 2024’s 17%. On the calendar 2026 EV/FCF basis, 11 times multiple is 50% below the 5-year median of ~20 times.

Price Actions: ADI stock is down 3.52% at $201.58 at last check Friday. NXPI is down 4.79%, and ON is down 6.03%.

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