ON Semiconductor Corporation (ON) | The Buildout — AI Infrastructure
The Verdict
onsemi is a power and sensing semiconductor company. Its power products span silicon carbide, silicon MOSFETs, power modules, gate drivers, and early vertical GaN; its sensing side includes image sensors, single-photon detectors, and time-of-flight sensors. In the AI buildout, it supplies the power chain from grid to processor—high-voltage conversion, point-of-load power at the XPU/GPU socket, and power-supply and battery-backup content for hyperscalers.
| Market Cap | — |
| Revenue (TTM) | $6.1B |
| Revenue Growth | −9.0% |
| EBITDA Margin (TTM) | 19.6% |
| Net Debt | $603M |
| Earnings Beats | 5 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- AI data center revenue is expected to more than double in 2026 to over $500M, from roughly $250M in 2025.
- Q2 2026 free cash flow nearly quadrupled year over year to $425.4M; record LTM free cash flow margin of 24%.
- Non-GAAP gross margin expanded for four consecutive quarters to 39.3% in Q2; Q3 guidance is 40–42%.
- Book-to-bill has been significantly above 1 for several quarters and continues to strengthen; lead times stretched to about 32 weeks.
- FabRight divestitures are expected to deliver $35M in annualized savings, with initial benefit in 2027 and full savings in 2028.
What We’re Watching
- Q3 'Other' revenue guided up high teens QoQ—the first hard test of the AI data center trajectory.
- Automotive restocking has not started; when it does, allocation conflict with AI data center supply could intensify.
- Input costs are rising; a second price increase was implemented but Q2 pricing had not yet benefited gross margin.
- Vertical GaN revenue is not expected until 2027; Treo still needs to scale toward its $1B 2030 target.
The thesis is strengthening. Management declared a clear inflection point in Q1, Q2 beat guidance with revenue up 9% YoY, and the AI data center outlook was raised from double to more than double in 2026. The main open question is whether the AI ramp can be verified cleanly while automotive restocking begins, given that supply is already being rationed toward AI.
Earnings Beat
Q2 2026 revenue was $1.604B, up 9% YoY and 6% QoQ, above the guidance midpoint. Non-GAAP gross margin was 39.3%, up 80 bps sequentially and a fourth consecutive quarter of expansion. Free cash flow was $425.4M, nearly quadrupled year over year, and record LTM free cash flow margin reached 24%.
| Metric | Q1 FY2026 | Q4 FY2025 | Q1 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $1.5B | $1.5B | $1.4B | +4.7% |
| Gross margin | 38.5% | 34.9% | 20.3% | +1820bps |
| EBITDA | −$43M | $468M | −$406M | −89.4% |
| EPS | $-0.08 | $0.45 | $-1.15 | −92.7% |
As we anticipated, the recovery continued to take shape during the quarter with continued strength in our AI data center business.— Hassane El-Khoury, CEO, Aug 3, 2026
Management tone: Management shifted from prior-period caution to more declarative recovery language, calling Q1 a "clear inflection point" and saying in Q2 the recovery "continued to take shape." The CFO was unusually candid about prioritizing AI data center shipments over automotive and industrial, acknowledging that decision took away from other businesses in the short term.
Management Guidance
For Q3 2026, management guided revenue of $1.65B–$1.75B, non-GAAP gross margin of 40–42%, non-GAAP EPS of $0.81–$0.93, and capex of $40M–$50M. End-market guidance: automotive up low single digits, industrial relatively flat, and Other up high teens QoQ. FY2026 guidance includes AI data center revenue more than double vs 2025, ESS revenue approximately 40% YoY, China automotive SiC revenue up 60–70% YoY, and full-year capex below 5% of revenue.
Trajectory
Through Q1 2026, the audited revenue spine showed sequential declines in Q4 2025 and Q1 2026, with Q1 revenue of $1,513M down 1.1% QoQ. Q2 2026 rebounded to $1,604M, up 6% QoQ and 9% YoY, driven primarily by AI data center within the 'Other' end market. Non-GAAP gross margin rose from 38.5% in Q1 to 39.3% in Q2, and Q3 guidance of 40–42% implies further sequential expansion as utilization gains begin to flow through.
The Model
The model projects FY+1 revenue of 6,500M and EBITDA of 1,982M (30.5% margin), and FY+2 revenue of 7,500M and EBITDA of 2,535M (33.8% margin). Near-term revenue is anchored by management's guided AI data center revenue more than doubling in 2026; FY+2 extends the recovery as utilization, pricing, and FabRight savings flow through.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $6.0B | $6.5B | $7.5B |
| YoY Growth | — | +8.4% | +15.4% |
| EBITDA | $823M | $2.0B | $2.5B |
| EBITDA Margin | 13.7% | 30.5% | 33.8% |
Projections are the median of 5 independent model runs. The model’s revenue sits 4.3% above analyst consensus.
For Q3 2026, management guided revenue of $1.65B–$1.75B, non-GAAP gross margin of 40–42%, non-GAAP EPS of $0.81–$0.93, and capex of $40M–$50M. End-market guidance: automotive up low single digits, industrial relatively flat, and Other up high teens QoQ. FY2026 guidance includes AI data center revenue more than double vs 2025, ESS revenue approximately 40% YoY, China automotive SiC revenue up 60–70% YoY, and full-year capex below 5% of revenue.
What Could Go Right — and Wrong
- AI data center revenue more than doubles in 2026 and named design wins (NVIDIA MGX, Great Wall, AWS, FlexPower) convert to production.
- 800V DC rack architecture ramps end-2027/early-2028, lifting content per rack from roughly $15,000 toward $115,000.
- Q3 and Q4 non-GAAP gross margin reaches 40–42% or higher as utilization benefits and pricing flow through.
- Automotive restocking begins, adding a second volume engine alongside AI data center.
- Treo revenue scales toward $1B by 2030 at 60–70% gross margins.
- AI data center is buried in the 'Other' bucket, which also includes consumer, networking, and communications; the clean AI contribution cannot be verified.
- Q2 gross margin improvement came from favorable mix rather than utilization or pricing; rising input costs and lagging price increases could stall expansion.
- Supply prioritization to AI pulled shipments from automotive and industrial; automotive restocking could intensify allocation friction.
- Vertical GaN revenue is not expected until 2027, and the 800V DC architecture ramp is timed for late 2027 or early 2028.
- Synaptics acquisition adds integration and approval risk; expected close is mid-2027.
Looking Ahead
The next 12 months are framed by Analyst Day on September 16, 2026, Q3 and Q4 earnings, and the ramp of AI data center and FabRight savings. Management expects H2 2026 to outgrow H1 and sequential non-GAAP gross margin expansion throughout the year. The Synaptics acquisition is expected to close mid-2027, adding integration and approval milestones.
- Sep 16, 2026Analyst Day — Scheduled in New York.
- Q3 2026 earningsQ3 results — Tests 40–42% non-GAAP gross margin and high-teens 'Other' revenue growth.
- End 2027 / beginning 2028800V DC rack ramp — CEO timing; would lift rack content toward $115,000.
- 2027Vertical GaN revenue — First revenue expected as GaN products move from sampling.
- Mid-2027Synaptics acquisition close — Pending regulatory approvals and integration.
- H2 2026Second-half performance — Management expects H2 to outgrow H1 and sequential margin expansion.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $7.1B | $6.0B | $6.1B | -15.3% |
| Gross Margin | 45.4% | 32.7% | 37.2% | 1,273bps |
| EBITDA | $2.4B | $823M | $16.9B | -65.9% |
| EBITDA Margin | 34.0% | 13.7% | 19.6% | 2,031bps |
| Net Income | $1.6B | $121M | $574M | -92.3% |
| Free Cash Flow | $1.2B | $1.7B | $8.9B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)37.2%
- EBITDA Margin (TTM)19.6%
- Net Margin (TTM)9.5%
- ROIC6.6%
- FCF Conversion122.6%
- SBC / Revenue2.4%
The Company
onsemi is a product-centric power and sensing semiconductor company offering intelligent power and sensing solutions for automotive, industrial, and other end markets including AI data center. Its power products span silicon carbide, MOSFETs, power modules, vertical GaN, and gate drivers; sensing includes CMOS image sensors, image signal processors, SWIR, single-photon detectors, and time-of-flight sensors.
Manufacturing remains largely internal at over 60% even after divestitures. The 10-K lists four major facilities in Czech Republic, Malaysia (two sites), and Mountaintop, Pennsylvania; Q2 2026 announced divestitures of Mountain Top and Philippines facilities under the FabRight program. The company reports through PSG, AMG, and ISG segments.
Business Segments
Competitive Landscape
onsemi faces large, well-capitalized competitors across segments: Infineon, STMicroelectronics, and Wolfspeed in power; Texas Instruments, Analog Devices, Monolithic Power Systems, and NXP in analog/mixed-signal; Sony, Samsung, and OmniVision in sensing. Management frames its edge as the only broad-based U.S. power semiconductor supplier across the full AI power tree.
- Infineon Technologies AGNamed in 10-K as a PSG primary competitor and an AMG competitor.
- STMicroelectronics N.V.Named in 10-K as a PSG and AMG competitor.
- Texas InstrumentsNamed in 10-K as an AMG competitor.
- Monolithic Power SystemsNamed in 10-K as an AMG competitor.
- Wolfspeed Inc.Named in 10-K as a PSG competitor.
Supply Chain
onsemi operates mostly internal manufacturing at over 60%, with four major 10-K facilities. The 10-K warns some facilities are single-source and it depends on a limited number of specialized third-party suppliers.
More on ON: Earnings recap