
ON Semiconductor Corporation

ON (ON Semiconductor Corporation) trades at 4.0x EV/Revenue — attractively valued for a power/sensing company with solid margins (32%) and mature growth profile (+5% YoY). The business is approaching profitability at 15% EBIT margins. Forward PE of 20x.
A stock trading at 2x EV/Revenue with 30% growth is cheaper than one at 5x with 10% growth — growth-adjusted valuation matters.
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ON Semiconductor designs and manufactures power management semiconductors that control electrical energy flow in cars, industrial equipment, and data centers. They solve the critical challenge of making electronic systems more energy-efficient and reliable, selling chips to automotive OEMs for electric vehicles, industrial manufacturers for automation equipment, and tech giants for AI data centers. The company generates revenue by developing specialized semiconductor solutions that their customers integrate into everything from Tesla battery systems to ChatGPT's server infrastructure.
Revenue is stabilizing after cyclical downturn, with core business showing above-seasonal growth trends when excluding $300M non-core exits through 2026. The company expects 4.7% revenue growth in 2026 to $6.3B, accelerating to $6.9B in 2027 as automotive markets fully recover and AI data center business scales. Key growth drivers include explosive AI infrastructure demand, automotive electrification with expanding per-vehicle content, and new GaN technology platform with >$1B design funnel.
Strong margin profile with 38.4% gross margins and record 24% free cash flow margins ($1.4B) despite cyclical headwinds. Currently experiencing margin pressure from low 68% factory utilization, but management expects expansion through 2026 as volumes recover and FabRite manufacturing optimization delivers $45-50M depreciation savings. The company maintains healthy 19.8% operating margins while returning 100% of free cash flow to shareholders via buybacks.
ON holds differentiated position as one of few companies spanning entire power conversion spectrum from high-voltage 1,200V devices to low-voltage power management, particularly strong in automotive and AI data centers. Key advantage lies in Treo platform momentum with doubled product sampling year-over-year and comprehensive GaN roadmap launching 30+ new devices in 2026. Competes with Infineon, STMicroelectronics, and Wolfspeed but maintains technology leadership in power efficiency solutions.
Q4 2025 delivered in-line $1.53B revenue with first year-over-year industrial growth after eight consecutive quarters of declines, signaling cyclical recovery. Automotive business showed stabilization with modest sequential growth, while AI data center exceeded expectations. Management guidance suggests Q1 2026 revenue above seasonal trends when excluding non-core exits, indicating underlying business strength despite headline softness.
Analysts project modest 2026 growth acceleration with EPS expanding from $2.92 to $4.02 in 2027 as operating leverage kicks in. Recent earnings beats averaging $0.03 per share demonstrate execution consistency, though revenue performance mixed with slight Q4 miss. Street debate centers on timing of automotive recovery and sustainability of AI data center growth rates given rapid 2025 expansion.
ON is a cyclical semiconductor play positioned at the intersection of two massive secular trends—automotive electrification and AI infrastructure—with strong technology differentiation and clear margin expansion runway as manufacturing utilization recovers.
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| '25E | '26E | '27E | '28E | |
|---|---|---|---|---|
| Revenue | $6.0B | $6.3B | $6.9B | $7.6B |
| Growth | — | +5% | +10% | +10% |
| EBITDA | — | $2.0B | $2.2B | $2.7B |
| Growth | — | +10% | +21% | |
| FCF | $1.4B | $4.7B | $5.5B | $7.3B |
| Margin | 24% | 75% |
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| 80% |
| 96% |
| EPS (PF) | $2.33 | $2.92 | $4.02 | $5.28 |
| Growth | — | +25% | +38% | +31% |
| PF Op Inc | — | $1.9B | $2.1B | $2.5B |