What Is One of the Best Semiconductor Stocks to Own for the Next Decade?

ON Semiconductor (NASDAQ: ON), a leading provider of power and sensing solutions for automotive (55% revenue, including EVs), industrial (25%), and data center markets, is experiencing near-term demand slowdowns due to reduced EV investment and broader industrial weakness. Despite these headwinds impacting sales since late 2023, the company is strategically positioned for long-term growth in EVs and is an Nvidia partner for next-generation data centers, set to arrive in 2027. Analysts view its valuation at approximately 14x 2025 free cash flow consensus as offering a margin of safety and attractive long-term growth potential, making it a compelling risk/reward opportunity.

Analysis

ON Semiconductor is currently navigating a challenging operating environment characterized by a slowdown in both electric vehicle (EV) investment and broader industrial end markets, which has led to decelerating sales since late 2023. These headwinds are attributed primarily to macroeconomic factors such as high interest rates impacting automotive demand. Despite these near-term pressures, the company's long-term strategic positioning remains intact, centered on secular growth trends. The automotive division, which constitutes 55% of 2024 revenue, is a key supplier of silicon carbide (SiC) chips for the EV market. The industrial segment, accounting for 25% of revenue, is exposed to automation and smart infrastructure. Critically, ON Semiconductor is also positioned as a beneficiary of the AI build-out through its partnership with Nvidia to develop next-generation data centers, a catalyst expected to materialize around 2027. From a valuation standpoint, the stock is trading at slightly over 14 times the Wall Street consensus for 2025 free cash flow, a multiple presented as offering a margin of safety against near-term earnings volatility.

Key Decisions for Investors

• Investors with a long-term horizon could view the current stock weakness, driven by cyclical headwinds, as a potential entry point given the company's alignment with secular growth in EVs, industrial automation, and AI infrastructure.
• It is prudent to monitor near-term macro indicators, particularly auto sales and industrial activity, as a prolonged downturn could further pressure sales and test the valuation's perceived margin of safety.
• Given that the significant catalyst from the Nvidia data center partnership is not anticipated until 2027, investors should be prepared for potential volatility and a holding period that allows for this long-term thesis to materialize.