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onsemi Trades at a Discount: Buy, Hold or Sell the Stock?
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Key Takeaways
onsemi has surged 115.7% in 2026 yet trades below the industry's forward P/E average.
ON's AI data center revenues more than doubled year over year and are expected to double in 2026.
onsemi's margins expanded for a third straight quarter as cost efforts and utilization improved.
onsemi (ON - Free Report) has quietly become one of the semiconductor sector’s strongest performers in 2026. The stock has surged 115.7% year to date, significantly outperforming the Zacks Semiconductor – Analog and Mixed industry’s 65% gain and the S&P 500’s 8.6% advance. Such a sharp rally would normally raise concerns about valuation. However, onsemi continues to trade at a forward 12-month price-to-earnings (P/E) ratio of 31.86X, below the industry average of 33.86X.
The combination of a discounted valuation and improving end-market demand makes the investment case more interesting. The key question for investors is whether the stock still offers attractive upside after its strong run.
ON Price Performance
Image Source: Zacks Investment Research
ON Valuation - P/E F12M
Image Source: Zacks Investment Research
ON Benefits From Improving Demand
onsemi's first-quarter 2026 results suggest that the company may have moved beyond the cyclical downturn that affected much of the semiconductor industry over the past two years. Revenues of $1.51 billion and non-GAAP earnings per share of 64 cents both exceeded management’s expectations. Demand improved throughout the quarter, with strengthening order patterns and improving backlog visibility. Management indicated that the business is now on a path toward recovery.
The company’s automotive revenues reached $797 million in the first quarter and grew nearly 5% year over year, marking its first year-over-year increase after seven consecutive quarters of declines. Industrial revenues remained soft sequentially but exceeded internal expectations, supported by improving demand trends across several industrial applications.
These trends are important because automotive and industrial markets represent the largest portions of onsemi’s business. A recovery in these segments could support stronger revenue growth over the next several quarters.
ON's AI Data Center Opportunity Expands
One of the biggest growth drivers for onsemi is artificial intelligence infrastructure. Management reported that AI data center revenue increased more than 30% sequentially during the first quarter and more than doubled from the year-ago period. Growth was driven by broader adoption of onsemi’s power solutions across multiple AI chip platforms and leading hyperscale customers.
The company now expects AI data center revenues to double in 2026 compared with 2025 levels. This business is becoming increasingly important as data centers require more efficient power management solutions to handle growing AI workloads. onsemi believes its portfolio positions it across the entire power chain, from power conversion and management to system-level integration.
Beyond direct AI data center exposure, management also highlighted what it calls the “AI halo effect,” where growing AI infrastructure investments are supporting demand for adjacent markets such as energy storage systems, microgrids and renewable energy projects. These trends could provide additional growth opportunities over time.
Automotive and EV Trends Support ON
Automotive remains one of onsemi’s most attractive long-term growth markets. The company continues to benefit from rising semiconductor content in electric vehicles, advanced driver-assistance systems and software-defined vehicle architectures. During the quarter, onsemi began production shipments of its Treo-based Ethernet solutions for next-generation zonal vehicle architectures at a major North American customer. The company also secured a new IGBT-based traction inverter program with a North American automaker.
The transition toward 900-volt EV architectures represents another major opportunity. onsemi's EliteSiC products are already being deployed in next-generation EV platforms that enable faster charging and greater efficiency. Expanded collaborations with Chinese EV manufacturers Geely and NIO further strengthen the company’s position in this market.
Management noted that onsemi held approximately 55% silicon carbide content share among new EV models showcased at the 2026 Beijing Auto Show, highlighting its strong competitive position in one of the world's largest EV markets.
Margin Expansion Strengthens the ON Story
Another encouraging aspect of the investment case is profitability. onsemi has spent several years simplifying its portfolio, improving manufacturing efficiency and optimizing costs. These efforts are now beginning to show up in financial results.
The company expanded gross margin to 38.5% in the first quarter, marking the third consecutive quarter of margin expansion. Management expects gross margin to continue improving throughout 2026 as revenues recover and manufacturing utilization rises.
The Treo platform could become an especially important contributor. Management indicated that Treo products carry gross margins in the 60%-70% range, significantly above company averages. As adoption expands across automotive, industrial and AI applications, Treo could become both a revenue and margin growth driver.
Strong cash generation also remains a positive. The company generated $217 million in free cash flow during the quarter and repurchased $346 million worth of shares, demonstrating confidence in its long-term outlook.
Challenges Still Remain for ON
Despite improving fundamentals, investors should not ignore the risks.
The semiconductor industry remains cyclical, and a sustained recovery is not guaranteed. Automotive demand remains uneven across several regions, while industrial markets continue to recover gradually rather than rapidly. Inventory levels also remain elevated. The company ended the first quarter with an inventory of 201 days, although management expects strategic inventory levels to decline over time.
Competition remains intense across power semiconductors, silicon carbide and AI infrastructure markets. Rivals continue investing aggressively in similar technologies, which could pressure pricing and market share gains.
In addition, onsemi’s ambitious expectations for AI data centers, silicon carbide and next-generation automotive architectures will require continued execution. Any slowdown in adoption rates or customer spending could impact growth expectations.
Comparing ON With Key Semiconductor Peers
Competition remains strong across the automotive, industrial and power semiconductor markets. Among onsemi’s key rivals are Infineon Technologies (IFNNY - Free Report) , STMicroelectronics (STM - Free Report) and NXP Semiconductors (NXPI - Free Report) .
Infineon remains one of the strongest competitors in silicon carbide, power semiconductors and automotive electronics. Infineon continues expanding its EV and industrial power portfolio while investing heavily in wide-bandgap technologies. Infineon Technologies also benefits from deep relationships with global automakers.
STMicroelectronics is another major player in automotive and industrial semiconductors. STMicroelectronics has built a strong position in power management, microcontrollers and silicon carbide products. STMicroelectronics continues to pursue opportunities tied to EV adoption, industrial automation and energy infrastructure.
NXP Semiconductors remains a leader in automotive processing, connectivity and vehicle networking solutions. NXP Semiconductors benefits from growing semiconductor content per vehicle and software-defined vehicle trends. NXP Semiconductors also maintains a broad industrial and communications portfolio that supports long-term growth.
Is ON Stock a Buy, Hold or Sell?
Although ON shares have more than doubled year to date, the stock does not appear excessively valued relative to its industry. The company trades at a modest discount to the Semiconductor – Analog and Mixed industry despite improving business conditions, expanding AI exposure and rising earnings expectations.
Analysts have become increasingly optimistic. Over the past 60 days, the Zacks Consensus Estimate for 2026 earnings per share has increased from $2.90 to $3.09, while the 2027 estimate has risen from $4.06 to $4.36. These projections imply earnings growth of 31.5% in 2026 and 41.1% in 2027.
Image Source: Zacks Investment Research
With demand improving, AI data center revenues accelerating, automotive opportunities expanding and margins moving higher, onsemi appears well-positioned for continued growth. While cyclical and execution risks remain, the stock’s discounted valuation and favorable earnings outlook support a constructive view.
Given these factors and its current Zacks Rank #2 (Buy), ON stock appears attractive for investors seeking exposure to AI infrastructure, automotive electrification and industrial automation trends. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
View the Zacks #1 Rank List
Image: Bigstock
onsemi Trades at a Discount: Buy, Hold or Sell the Stock?
Key Takeaways
onsemi (ON - Free Report) has quietly become one of the semiconductor sector’s strongest performers in 2026. The stock has surged 115.7% year to date, significantly outperforming the Zacks Semiconductor – Analog and Mixed industry’s 65% gain and the S&P 500’s 8.6% advance. Such a sharp rally would normally raise concerns about valuation. However, onsemi continues to trade at a forward 12-month price-to-earnings (P/E) ratio of 31.86X, below the industry average of 33.86X.
The combination of a discounted valuation and improving end-market demand makes the investment case more interesting. The key question for investors is whether the stock still offers attractive upside after its strong run.
ON Price Performance
Image Source: Zacks Investment Research
ON Valuation - P/E F12M
Image Source: Zacks Investment Research
ON Benefits From Improving Demand
onsemi's first-quarter 2026 results suggest that the company may have moved beyond the cyclical downturn that affected much of the semiconductor industry over the past two years. Revenues of $1.51 billion and non-GAAP earnings per share of 64 cents both exceeded management’s expectations. Demand improved throughout the quarter, with strengthening order patterns and improving backlog visibility. Management indicated that the business is now on a path toward recovery.
The company’s automotive revenues reached $797 million in the first quarter and grew nearly 5% year over year, marking its first year-over-year increase after seven consecutive quarters of declines. Industrial revenues remained soft sequentially but exceeded internal expectations, supported by improving demand trends across several industrial applications.
These trends are important because automotive and industrial markets represent the largest portions of onsemi’s business. A recovery in these segments could support stronger revenue growth over the next several quarters.
ON's AI Data Center Opportunity Expands
One of the biggest growth drivers for onsemi is artificial intelligence infrastructure. Management reported that AI data center revenue increased more than 30% sequentially during the first quarter and more than doubled from the year-ago period. Growth was driven by broader adoption of onsemi’s power solutions across multiple AI chip platforms and leading hyperscale customers.
The company now expects AI data center revenues to double in 2026 compared with 2025 levels. This business is becoming increasingly important as data centers require more efficient power management solutions to handle growing AI workloads. onsemi believes its portfolio positions it across the entire power chain, from power conversion and management to system-level integration.
Beyond direct AI data center exposure, management also highlighted what it calls the “AI halo effect,” where growing AI infrastructure investments are supporting demand for adjacent markets such as energy storage systems, microgrids and renewable energy projects. These trends could provide additional growth opportunities over time.
Automotive and EV Trends Support ON
Automotive remains one of onsemi’s most attractive long-term growth markets. The company continues to benefit from rising semiconductor content in electric vehicles, advanced driver-assistance systems and software-defined vehicle architectures. During the quarter, onsemi began production shipments of its Treo-based Ethernet solutions for next-generation zonal vehicle architectures at a major North American customer. The company also secured a new IGBT-based traction inverter program with a North American automaker.
The transition toward 900-volt EV architectures represents another major opportunity. onsemi's EliteSiC products are already being deployed in next-generation EV platforms that enable faster charging and greater efficiency. Expanded collaborations with Chinese EV manufacturers Geely and NIO further strengthen the company’s position in this market.
Management noted that onsemi held approximately 55% silicon carbide content share among new EV models showcased at the 2026 Beijing Auto Show, highlighting its strong competitive position in one of the world's largest EV markets.
Margin Expansion Strengthens the ON Story
Another encouraging aspect of the investment case is profitability. onsemi has spent several years simplifying its portfolio, improving manufacturing efficiency and optimizing costs. These efforts are now beginning to show up in financial results.
The company expanded gross margin to 38.5% in the first quarter, marking the third consecutive quarter of margin expansion. Management expects gross margin to continue improving throughout 2026 as revenues recover and manufacturing utilization rises.
The Treo platform could become an especially important contributor. Management indicated that Treo products carry gross margins in the 60%-70% range, significantly above company averages. As adoption expands across automotive, industrial and AI applications, Treo could become both a revenue and margin growth driver.
Strong cash generation also remains a positive. The company generated $217 million in free cash flow during the quarter and repurchased $346 million worth of shares, demonstrating confidence in its long-term outlook.
Challenges Still Remain for ON
Despite improving fundamentals, investors should not ignore the risks.
The semiconductor industry remains cyclical, and a sustained recovery is not guaranteed. Automotive demand remains uneven across several regions, while industrial markets continue to recover gradually rather than rapidly. Inventory levels also remain elevated. The company ended the first quarter with an inventory of 201 days, although management expects strategic inventory levels to decline over time.
Competition remains intense across power semiconductors, silicon carbide and AI infrastructure markets. Rivals continue investing aggressively in similar technologies, which could pressure pricing and market share gains.
In addition, onsemi’s ambitious expectations for AI data centers, silicon carbide and next-generation automotive architectures will require continued execution. Any slowdown in adoption rates or customer spending could impact growth expectations.
Comparing ON With Key Semiconductor Peers
Competition remains strong across the automotive, industrial and power semiconductor markets. Among onsemi’s key rivals are Infineon Technologies (IFNNY - Free Report) , STMicroelectronics (STM - Free Report) and NXP Semiconductors (NXPI - Free Report) .
Infineon remains one of the strongest competitors in silicon carbide, power semiconductors and automotive electronics. Infineon continues expanding its EV and industrial power portfolio while investing heavily in wide-bandgap technologies. Infineon Technologies also benefits from deep relationships with global automakers.
STMicroelectronics is another major player in automotive and industrial semiconductors. STMicroelectronics has built a strong position in power management, microcontrollers and silicon carbide products. STMicroelectronics continues to pursue opportunities tied to EV adoption, industrial automation and energy infrastructure.
NXP Semiconductors remains a leader in automotive processing, connectivity and vehicle networking solutions. NXP Semiconductors benefits from growing semiconductor content per vehicle and software-defined vehicle trends. NXP Semiconductors also maintains a broad industrial and communications portfolio that supports long-term growth.
Is ON Stock a Buy, Hold or Sell?
Although ON shares have more than doubled year to date, the stock does not appear excessively valued relative to its industry. The company trades at a modest discount to the Semiconductor – Analog and Mixed industry despite improving business conditions, expanding AI exposure and rising earnings expectations.
Analysts have become increasingly optimistic. Over the past 60 days, the Zacks Consensus Estimate for 2026 earnings per share has increased from $2.90 to $3.09, while the 2027 estimate has risen from $4.06 to $4.36. These projections imply earnings growth of 31.5% in 2026 and 41.1% in 2027.
Image Source: Zacks Investment Research
With demand improving, AI data center revenues accelerating, automotive opportunities expanding and margins moving higher, onsemi appears well-positioned for continued growth. While cyclical and execution risks remain, the stock’s discounted valuation and favorable earnings outlook support a constructive view.
Given these factors and its current Zacks Rank #2 (Buy), ON stock appears attractive for investors seeking exposure to AI infrastructure, automotive electrification and industrial automation trends. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.