Morgan Stanley raises ON Semiconductor price target on power demand

Morgan Stanley lifted its ON Semiconductor price target to $85 from $64, citing positive analog sector results, a better automotive backdrop, and improving power demand, though it kept an Equalweight rating. ON shares are up 82% year-to-date and nearly 20% in the last five days, while B.Riley and BofA also raised targets to $115 and $85, respectively, with BofA pointing to AI exposure and a $6 billion buyback. The article also notes surging semiconductor lead times, a 1-for-32 reverse split at ConnectM Technology Solutions, and stronger first-quarter results at Amble Electronics.

Analysis

The setup is less about the printed target and more about the market’s willingness to pay up for duration in semis that have visible exposure to auto and power. ON is now trading like a quasi-infrastructure compounder rather than a cyclical chip vendor, which is usually late-cycle behavior; that tends to create a narrow window where momentum and estimate revisions can outrun fundamentals for 1-2 quarters.

The second-order winner is likely the broader power semis and analog supply chain: prolonged lead-time expansion shifts bargaining power toward suppliers with qualified capacity, while customers facing shortage risk are forced to double-order and build buffers. That dynamic can inflate near-term revenue for ON and peers, but it also raises the probability of a digestion air-pocket later in the year once channel inventories normalize and auto demand is lapped.

The key risk is that the market is implicitly underwriting a smooth second-half reacceleration, yet the stock’s magnitude of year-to-date appreciation leaves little room for any reset in auto demand, power mix, or pricing. If lead times peak before real end-demand inflects, the sector could quickly transition from shortage premium to de-stocking concern within 1-2 quarters, especially for names with the strongest rerating already behind them.

Contrarian view: the consensus may be overestimating the durability of the multiple expansion and underestimating how quickly supply additions can arrive in a constrained but profitable segment. ON’s buyback story helps the floor, but it does not immunize the stock from mean reversion if the upgrade cycle becomes crowded and the market stops paying for the same estimate revisions twice.

Key Decisions for Investors

• Stay tactically long ON only on pullbacks; use a 4-8 week horizon and fade strength after large gap-ups, because the rerating has likely pulled forward 2-3 quarters of good news.
• Pair trade: long ON / short a weaker-capacity analog or power peer with less automotive exposure for a 1-2 quarter relative-value expression; the trade works if shortage conditions persist but multiple dispersion widens.
• For new money, prefer call spreads over outright equity in ON to cap downside from any second-half digestion; 3-6 month tenors best match the estimate-revision window.
• Watch for signs of inventory rebuild in auto OEMs and distributors over the next earnings cycle; if channel fills faster than end-demand, reduce ON exposure quickly because the stock is priced for a continuation scenario.
• Use any rally driven by further target raises to trim, not add, unless lead-time data continues to extend for another 1-2 months.