ON Semiconductor: Short-Term Pain, Long-Term Upside Keeps Me Buying

An analyst recommends buying ON Semiconductor, asserting that current short-term headwinds like tariffs and underutilized factories are already priced into the stock. The company's strategic focus on high-margin silicon carbide chips for electric vehicles, industrial power, and data centers positions it for significant future growth. Despite near-term earnings pressure and restructuring costs, ON's valuation is attractive, trading at a discount to the broader tech sector, with analysts projecting a strong EPS rebound from 2026, presenting a compelling accumulation opportunity.

Analysis

The investment thesis for ON Semiconductor (ON) centers on a long-term growth narrative that is currently obscured by near-term operational and financial headwinds. According to the analysis, factors such as tariffs, the costs associated with underutilized manufacturing facilities, and restructuring charges are creating pressure on near-term earnings, but these are assessed to be already priced into the stock's valuation. The company's strategic focus is on higher-margin products, particularly silicon carbide (SiC) chips, positioning it to capitalize on secular growth trends in the electric vehicle (EV), industrial power, and data center markets. Despite current earnings weakness, ON is noted to trade at a discount to the broader technology sector on both cash flow and earnings multiples. This valuation gap is presented as an attractive entry point, especially as analyst consensus projects a strong earnings per share (EPS) rebound commencing from 2026, suggesting the current phase is one of stabilization rather than a full-blown recovery.

Key Decisions for Investors

• Investors with a long-term horizon could consider the current share price, impacted by near-term headwinds, as a strategic opportunity to accumulate a position ahead of the anticipated recovery driven by silicon carbide adoption.
• It is crucial to monitor key operational metrics, such as factory utilization rates and progress on cost discipline, as these will be leading indicators for the projected earnings rebound expected from 2026 onwards.
• Evaluate ON's valuation on cash flow and earnings multiples against its semiconductor peers to determine if the described discount is compelling enough to offset the risks of near-term earnings pressure.
• Investors should be prepared for potential volatility and acknowledge that the thesis requires patience, as the significant financial recovery is not expected to materially manifest until 2026.