DeepValue - Deep Research for Stocks | Institutional Intelligence at Scale

ON Semiconductor (NASDAQ: ON) is one of the more polarizing names in power semis heading into 2026. On one hand, the company has real strengths: a leading position in silicon carbide (SiC), deep relationships in automotive and industrial markets, and strong free cash flow even at today’s depressed margins. On the other hand, the stock trades at a rich multiple, just as the business navigates a messy manufacturing reset and a cyclical trough in its core end markets.

We’ve spent significant time digging into ON’s filings, investor presentations, and independent research using our own methodology. According to the onsemi FY24 PR, Feb 2025, revenue fell 14% in 2024 to $7.08B, yet the company still delivered 45.5% gross margin and 27.9% operating margin. Fast‑forward to late 2025, and non‑GAAP gross margin has compressed to roughly 38% while management continues to tout ambitious 2027 targets of 53% gross margin and 25–30% free cash flow (FCF) margin. That gap between current reality and future promises sits at the center of the investment debate.

At around $60 per share, the stock prices in a relatively clean recovery in auto/EV and industrial demand and assumes ON can execute a sizable $6B buyback from 2026–2028. Our conclusion: that’s a bit too optimistic for us to jump in aggressively right now. We rate the stock a WAIT, with a bias to get more constructive if we see sustained margin improvement and healthier auto/SiC trends over the next 6–12 months.

If you want to shortcut the heavy lifting for names like ON, you can lean on AI tools. We use DeepValue internally to ingest 10‑Ks, 10‑Qs, and industry sources, then structure everything into comparable reports in minutes rather than days.

Build a complete, citation-backed view of ON’s valuation, risks, and catalysts in minutes instead of spending hours combing through filings and earnings calls

Run Deep Research on ON →

Let’s walk through how we’re thinking about ON today, what the market is pricing in, and what we’re watching into 2026.

ON Semiconductor: From commodity chips to intelligent power and sensing

ON Semiconductor has reinvented itself over the last few years. Originally a broad mixed-signal and commodity discrete supplier, ON has pivoted hard toward higher-value automotive and industrial applications. It has exited lower-margin lines, reshaped its segment reporting, and aggressively optimized its fab footprint.

Today, the company’s portfolio spans:

Power Solutions Group (PSG) – power devices, including silicon and SiC, plus modules
Analog and Mixed-Signal Group (AMG) – analog and power management ICs
Intelligent Sensing Group (ISG) – image sensors and related solutions

According to the company’s 10-K (2025), around 80% of revenue comes from automotive and industrial end markets, with the remainder from “other” markets such as consumer and communications. That concentration is a double-edged sword: it gives ON leverage to secular themes like EVs, factory automation, and grid modernization, but it also ties results to highly cyclical capex and end-demand patterns.

The real strategic bet is on intelligent power—especially SiC:

ON has articulated a 35–40% market share ambition in SiC, supported by its EliteSiC brand and the 2025 acquisition of Qorvo’s SiC JFET technology. Investing.com, May 2025
Its manufacturing strategy includes a partly vertically integrated model with key fabs in East Fishkill (EFK), Hudson, the Czech Republic, and South Korea. onsemi Analyst Day PR, May 2023

This is not a “pure play AI chip” story. It’s a cyclical power and sensing business that stands to benefit from EV and AI power infrastructure—if it can execute.

What is the market pricing into ON’s stock?

At a market cap of roughly $24.7B and a share price around $60, ON trades at about 77x trailing P/E and ~10x EV/EBITDA, with net debt/EBITDA of only 0.27 and interest coverage of 4.25. Those valuation metrics come from [Financials (FMP)] as cited in our report and are on the high side for a company sitting in the middle of an auto/industrial downcycle.

Here’s what we think the current valuation implicitly assumes:

2025 is the trough in both earnings and free cash flow
Auto and industrial revenue start to grow again in 2026–2027
SiC ramps work, supporting utilization and mix-driven margin expansion
Gross margin moves from the high‑30s today toward the mid‑40s or better
The $6B buyback is funded largely from healthy FCF, not new leverage

Market sentiment backs this up. As S&P Global Market Intelligence, Oct 2025 notes, consensus now frames ON as a cyclical name near a trough, with a recovery narrative tied to EVs, SiC, and AI data center power. Meanwhile, multiple outlets highlight the new $6B buyback authorization as a key re-rating catalyst. Defense World, Nov 2025

Our work suggests the stock bakes in a base-case outcome that is far from guaranteed. We model three scenarios:

Base case (45% probability): Implied value around $65
Bear case (30% probability): Implied value around $50
Bull case (25% probability): Implied value around $80

At today’s price, you’re not getting a clear discount to that base case, especially once you factor in execution risk around the manufacturing reset and LTSAs (long-term supply agreements).

Is ON stock a buy in 2026 or one to wait on?

From our perspective, ON is not a table‑pounding buy at current levels. We rate it WAIT for three main reasons:

1. Rich valuation with thin margin of safety

Even though ON’s balance sheet isn’t stretched, the multiple leaves little room for disappointment. According to MarketBeat, Nov 2025, ON generated about $1.2B in free cash flow in 2024 (roughly 20–24% of revenue), which is strong. But when you marry that with a 77x trailing P/E and management returning nearly all FCF via buybacks, the equity behaves more like a high‑beta cyclical than a defensive cash cow.

2. Structural reset vs. simple downturn

This is not just a gentle pause in orders. ON is in the middle of a significant manufacturing and portfolio reset:

The 2025 Manufacturing Realignment Program cut ~2,400 employees and triggered over $600m of restructuring and inventory charges by Q3 2025, particularly in ISG. [Filings Variant 1; Filings Variant 4]
Management also decided in November 2025 to accelerate depreciation and take additional asset impairments, effectively resetting parts of the fab footprint. Filings Variant 4; 8-K (2025)

These are the right kind of painful moves long term, but they raise near-term execution risk.

3. Ambitious 2027 targets from a weak starting point

ON continues to reiterate 2027 goals of 10–12% revenue CAGR, 53% gross margin, and 25–30% FCF margin as laid out at the onsemi Analyst Day PR, May 2023. Yet non‑GAAP gross margin sat at just 38.0% in Q3 2025, with non‑GAAP operating margin at 19.2%. SEC 8‑K Exhibit 99.1, Nov 2025 That’s a long climb in a short window.

For us to upgrade ON from a WAIT to a BUY, we’d want to see concrete proof that the margin and utilization recovery is more than just talk.

What would make us more bullish?

Over the next 6–12 months, several signposts matter:

Gross margin: We’d like to see non‑GAAP gross margin move and hold above 40–42%. That would signal that factory utilization and mix are improving in a durable way.
Auto and SiC revenue trends: Auto revenue troughed at $733m in Q2 2025 and improved to $787m in Q3. onsemi Q3 2025 PR, Nov 2025 Sustained sequential growth from that base—especially outside China—would support the recovery thesis.
Balanced capital allocation: The $6B buyback is attractive, but only if ON simultaneously maintains enough capex to support its SiC and power roadmaps. We’d be encouraged if capex rises from Q3 2025’s ~3% of revenue back to the mid‑single digits, while FCF margins stay ≥20%. Filings Variant 2; MarketBeat, Nov 2025

If those boxes start to get checked, we’d be more comfortable buying closer to our base‑case value range of mid‑$60s to mid‑$70s, depending on where the cycle and rates are at that time.

Will ON deliver long‑term growth from EVs, SiC, and AI power?

Longer term, the bull case for ON is straightforward: it’s a leveraged way to gain exposure to three structural trends:

1. Electrification of vehicles

Every EV and plug‑in hybrid adds more “content per car” for power semiconductors. Higher battery voltages, faster charging, and more advanced driver assistance all need efficient power conversion and sensing. ON targets traction inverters, onboard chargers, DC‑DC converters, and safety systems with both Si and SiC solutions.

2. Industrial automation and energy infrastructure

Factory automation, robotics, and smart grid infrastructure all rely on power and sensing for efficiency and safety. ON’s AMG and PSG segments are positioned to capture these opportunities, though industrial spending is currently soft. S&P Global MI, Oct 2025

3. AI data center power

As AI clusters drive up data center power consumption, operators are looking for higher‑efficiency power stages. ON’s EliteSiC and other power solutions can reduce power losses and cooling needs. onsemi PR, Aug 2025

According to Investing.com, Sep 2025, ON has more than 600 SiC customers and over 500 products designed into production vehicles, with China SiC sales roughly doubling year‑over‑year in Q2 2025. That’s real traction, not a slide‑ware story.

But to convert this optionality into shareholder value, ON must execute consistently on:

SiC capacity ramps across EFK, Hudson, the Czech Republic, and South Korea
Yield and cost competitiveness against peers like STMicro, Infineon, and Wolfspeed
Long‑term supply agreements (LTSAs) that are economically sound and not prone to mass amendments

The LTSAs in particular are a double-edge sword. ON cites $11.9B in remaining performance obligations, which looks impressive. But as the 10-K (2025) and [Filings Variant 3] highlight, customers have already amended or canceled delivery, pricing, and volume terms. So, backlog quality isn’t as bulletproof as headlines suggest.

How healthy is ON’s balance sheet and margin of safety?

From a downside protection standpoint, ON is okay, not fantastic.

Positives:

Liquidity: Around $2.9B in cash and short-term investments plus an undrawn revolver bring total liquidity to about $4B as of Q3 2025. MarketBeat, Nov 2025
Leverage: Net debt/EBITDA is just 0.27 with interest coverage of 4.25. [Financials (FMP)]
Cash generation: ON has delivered ~20–24% FCF margins even at trough‑like gross margins of ~38%. onsemi Q3 2025 PR, Nov 2025

Those are solid buffers against a typical cyclical downturn.

The challenge is that management is using much of that cushion to fund aggressive capital returns:

Capex has been cut from 19% of revenue in 2023 to about 5–6% in 2025. [Filings Variant 2]
Buybacks increased from $259.8m in 2022 to $650m in 2024 and $925m in the first nine months of 2025. Filings Variant 5; onsemi FY24 PR, Feb 2025
The board authorized a $6B share repurchase program for 2026–2028, equivalent to roughly one‑third of the current market cap. onsemi PR, Nov 2025

We like buybacks when they’re funded by robust cash generation and backed by a clear path to higher earnings power. We’re more cautious when they come at a time of unusually high uncertainty around future margins and capex needs.

Our downside concerns revolve around three potential failure modes:

1. Prolonged sub‑40% gross margins

If auto and industrial demand stay weaker for longer, and ON’s high‑fixed‑cost fabs remain underutilized, gross margin could remain stuck in the high‑30s. That would squeeze FCF margins down from the ~20–24% range into the mid‑teens or lower, making it harder to both invest and buy back stock.

2. Problematic LTSAs

If a meaningful portion of the $11.9B in LTSAs gets amended on unfavorable terms—e.g., lower pricing at fixed costs—backlog conversion and realized margins could disappoint. This is a key risk given the fixed‑price nature of many of these agreements. [Filings Variant 3]

3. Over-aggressive buybacks vs. capex

If management leans into the buyback even as free cash flow and margins compress, ON could be forced to draw down cash or increase leverage materially. Combined with potential under‑investment in SiC and power capacity, that would weaken both the balance sheet and the long‑term competitive position.

For investors, the takeaway is simple: this is not a bond proxy. ON is an equity with real cyclical and execution risk. Position sizing should reflect that.

If you’re tracking multiple cyclical names like ON at once, doing this depth of analysis manually across 10+ tickers is painful. We’ve found that using DeepValue as an AI research layer lets us scan SEC filings, investor decks, and niche industry sources in parallel and standardize the output.

Use AI to replicate our structured ON playbook—scenarios, checkpoints, and margin-of-safety work—for every stock on your watchlist in about five minutes each

See the Full Analysis →

Key catalysts and what we’re watching into 2027

ON’s story is going to evolve quarter by quarter over the next two years. We’re anchoring our monitoring around three timeframes.

Near term (0–6 months)

1. Q4 2025 earnings and 2026 guidance

According to the onsemi Q3 2025 PR, Nov 2025, Q3 revenue was $1.55B with 38.0% non‑GAAP gross margin. For Q4 and 2026, we want to see:

Revenue at least flat‑to‑up versus Q3’s $1.55B
Guidance for non‑GAAP gross margin with a midpoint above 38%

If guidance underwhelms on either dimension, it weakens the “2025 trough” narrative and would justify keeping exposure modest.

2. Integration of the Qorvo SiC JFET acquisition

As the Qorvo SiC JFET assets are integrated into PSG, we’ll look for early comments on:

Design‑win traction
Contribution to utilization at key SiC fabs
Any incremental capex or yield challenges

3. Additional asset impairments and depreciation changes

The November 2025 decision to accelerate depreciation and record more impairments should clarify how much cost relief ON gets from 2026 onward. [Filings Variant 4] That impacts both reported margins and the real economic cost structure.

Medium term (6–18 months)

Here, the focus shifts from guidance to actual execution:

Fab utilization trends: Moving from ~74% in Q3 2025 into the high‑70s or better, with evidence that this is driven by healthy demand rather than inventory stuffing. Motley Fool transcript, Nov 2025
Auto revenue momentum: Consistent sequential growth from the Q2 2025 trough, particularly in key EV and ADAS platforms. Barron’s, Nov 2025
Gross margin recovery: Non‑GAAP gross margin marching into the low‑40s and staying there, rather than oscillating around the high‑30s.
Backlog conversion: Roughly 35% of the $11.9B LTSA backlog converted into revenue on schedule with limited adverse amendments. [Filings Variant 3]

If ON can hit these medium‑term checkpoints, the probability of our base case—and possibly the bull case—goes up.

Long term (2–5 years)

Beyond 2027, the question is whether ON can truly sustain:

10–12% revenue CAGR
53% gross margin
40% operating margin

25–30% FCF margin

as reiterated in the onsemi Analyst Day PR, May 2023.

We’re skeptical of the full package but open‑minded. A more modest but still attractive outcome—say mid‑40s gross margin and high‑teens to low‑20s FCF margin—could still justify decent upside from lower entry points if you don’t overpay on the way in.

Key long‑term swing factors:

SiC share and platform retention: If a major EV or AI power OEM publicly switches a flagship platform away from ON’s EliteSiC to a competitor (STMicro, Infineon, Wolfspeed) by 2027, that would meaningfully dent the long‑term thesis. Investing.com, May 2025
Government incentives and geopolitics: Trade restrictions, especially between the U.S. and China, could impact both demand and the economics of ON’s fab network, including its Leshan JV. [Industry & competitive context headwinds block]
Competitive capex cycles: If peers out‑invest ON in SiC and wide‑bandgap capacity while ON prioritizes buybacks, it risks losing its cost and technology edge.

How we’d approach ON as value-oriented investors

From a portfolio construction standpoint, here’s how we think about ON:

Rating: WAIT
Conviction: 3.5 / 5 (moderate)
Attractive entry zone: Closer to $50 per share, particularly if macro sentiment is weak but internal KPIs are stabilizing
Trim/exit zone: Above $75, unless ON is clearly beating its margin and growth targets

For patient investors, ON can make sense as a watchlist candidate with clearly defined triggers:

Add or initiate:
If gross margin sustains >42% and auto revenue grows high‑single digits from the 2025 trough
If buybacks are visibly funded by strong FCF while capex normalizes higher
Stay on the sidelines:
If gross margin remains <38% through 2026
If auto and SiC revenue stagnate near 2025 trough levels
Reduce or exit:
If ON funds the $6B buyback significantly in excess of FCF, driving up leverage and limiting strategic flexibility
If the company abandons or sharply lowers 2027 targets without a credible alternate path to mid‑40s gross margins

For those who want to systematize this kind of playbook across dozens of names, one practical approach is to use AI to build standardized research and monitoring frameworks. Read our AI-powered value investing guide to see how tools like DeepValue can bridge the gap between screening and full manual deep dives.

Turn ON’s 10-K, 10-Q, earnings calls, and industry sources into a structured bull/bear checklist and scenario model without spreadsheets

Research ON in Minutes →

Bottom line: High-quality franchise, but wait for better odds

We like a lot about ON:

Strong positioning in intelligent power and sensing
Real competitive assets in SiC and power modules
Healthy free cash flow even at cyclical lows
A management team willing to take painful restructuring actions

We’re less enthused about:

Paying a premium multiple at a time when execution risk is rising
Heavy reliance on a very large buyback to drive per-share growth
The gap between current 38% gross margins and the 53% target by 2027
The fragility of LTSAs and the potential for adverse amendments

For investors who already own ON, we don’t see an urgent reason to dump the stock if you sized it appropriately and understand the cyclical risk. For new capital, though, we’d prefer either:

A better entry price (closer to $50), or
Clearer evidence that the recovery is on track (gross margin >40–42% and visible auto/SiC re‑acceleration)

Until one of those two things happens, we’re content to keep ON on our watchlist and let the story develop.

Build a repeatable research process for cyclical names like ON—standardized scenarios, checkpoints, and evidence-backed theses across your portfolio

Try DeepValue Free →

ON Semiconductor (onsemi) (ON) Deep Research Report: Overvalued vs. Opportunity – What 2026 Investors Should Watch