What Is the Best Chip Stock to Own for the Next 10 Years?

ON Semiconductor, a supplier of intelligent power and sensing solutions focused on automotive and industrial end markets, trades at an attractively modest valuation of ~21x estimated 2025 EPS and ~14.5x estimated 2025 free cash flow. Management expects 2024 to be a trough with Wall Street forecasting ~25% earnings growth next year, and has authorized up to $6 billion in buybacks over three years; the company projects roughly $6 billion revenue in 2025 with about $250 million from AI/data-center initiatives tied to a partnership with Nvidia. While near-term automotive and industrial demand has softened, the firm’s exposure to EVs, ADAS, industrial automation and a growing AI/data business underpins a long-term bullish case for patient investors.

Analysis

Market structure: ON Semiconductor (ON) is a direct beneficiary of a trough-to-recovery in automotive power & sensing plus a nascent AI/data‑center power cycle; NVDA also benefits as a design partner while legacy ICE-focused suppliers and cyclical consumer-logic suppliers are likely pressured. Current pricing power is constrained by softer EV/industrial demand, implying a supply cushion in 2024–2025, but a discrete pick‑up in AI/DC demand (ON guiding ~$250M of ~$6B revenue in 2025) could flip the balance in 2026–2028. Cross‑asset: stronger FCF and a $6B buyback program should compress ON equity risk premium, tighten credit spreads for ON and reduce volatility skew; stronger metal/PCB commodity moves remain a modest margin risk.

Key Decisions for Investors

• Establish a 2–3% long core position in ON (ticker: ON) over the next 4–8 weeks; scale into additional 1–2% if ON trades down to an implied FCF multiple ~12.5x (FCF yield ≈8%) or P/E falls to ~18x 2025E, with a 12–24 month investment horizon to capture EV/AI cycle recovery.
• Implement a relative trade: long ON (2%) vs short SOXX (2%) to exploit valuation dispersion; unwind when ON/SOXX forward P/E spread narrows by 50% or after 12 months, whichever comes first.
• Use options to define risk: buy Jan 2026 LEAP call spreads on ON (buy 1x ATM call, sell 1x 1.5x OTM call) sized to 1–2% notional to capture 2026–27 AI DC ramp while capping cost; alternatively sell 10% OTM cash‑secured puts expiring in 6–9 months to collect premium if comfortable with assignment at that strike.
• Risk trigger & monitoring: if ON misses 2025 revenue guide by >5% or Nvidia partnership public design wins are delayed beyond H1 2026, cut position by 50% within 30 days; if buyback execution pace falls below $1.5B/year, re-evaluate thesis and trim to 1%.