Evercore ISI raises ON Semiconductor price target on AI growth outlook

Evercore ISI raised its ON Semiconductor price target to $121 from $80, citing first-quarter EPS 5% above expectations, Q2 EPS guidance 7% above consensus, and Q2 revenue guidance 350 bps above Street estimates. The firm highlighted AI data center revenue set to double year over year in 2026 to more than $500 million, with automotive revenue returning to 5% growth after seven straight quarters of decline. Mizuho also lifted its target to $120 from $70 after ON reported Q1 2026 EPS of $0.64 versus $0.61 expected and revenue of $1.51 billion versus $1.49 billion consensus.

Analysis

The market is starting to price ON less like a cyclical auto-parts supplier and more like a scarce-capacity power semiconductor platform tied to AI infrastructure. The first-order implication is not just higher revenue, but a better mix: datacenter power products should carry meaningfully higher gross profit dollars than legacy industrial lines, while the auto rebound reduces perceived downside in a segment that had been a source of multiple compression. If management can sustain lead-time extension and allocation behavior, the stock may continue to re-rate because the market tends to pay up for names that can defend price in an otherwise normalization-prone semiconductor tape.

The second-order winner is likely the broader power-chain ecosystem: equipment vendors and substrate/material suppliers that benefit from a multi-quarter capacity buildout without needing heroic end-demand assumptions. The loser set is the lower-quality analog/power peers with weaker exposure to AI power shelves and less pricing power; they may see relative valuation pressure if ON keeps taking share in the investor narrative around electrification plus AI capex. The key tell is whether this is true demand acceleration or simply backlog conversion with temporary supply tightness — the former supports a multi-year rerating, the latter only a few quarters of upside.

Consensus may be missing how much of the upside is now in the multiple rather than the numbers. With the stock already near highs, any guidance cadence that merely meets the raised bar can trigger a sharp de-rating because momentum holders are underwriting an accelerating 2026 story, not a stable 2025 story. The main reversal risks are a fast normalization in lead times, a pause in auto restocking, or AI datacenter revenue that grows but fails to translate into margin expansion. Horizon matters: the next 1-2 quarters are about confirmation; the next 12-18 months are about whether ON earns a premium multiple as a constrained supplier with improving mix.

Key Decisions for Investors

• Stay long ON into the next print but use call spreads rather than outright stock: buy 3-6 month 100/120 call spreads to express upside while capping valuation risk if the market decides the re-rating has run ahead of fundamentals.
• Pair long ON vs short a weaker power-analog peer basket over the next 2-3 quarters; the trade is that ON’s AI/datacenter mix and allocation story should outperform names still waiting for cyclical recovery.
• If already long, trail a stop on a weekly close basis roughly 8-10% below current levels; the stock is priced for continued positive revision momentum, so any guidance miss or slowing backlog conversion should de-risk quickly.
• Add on any post-earnings pullback only if management reiterates the 2026 AI revenue ramp and gross margin expansion; that would make a retracement a better entry than chasing strength after a 166% run.
• For investors seeking a cleaner macro hedge, consider pairing ON long with a short in a higher-beta cyclical semiconductor name that lacks AI power exposure; the relative trade should work even if the broader chip tape stays mixed.