ON Semiconductor (ON) Stock Forecast & Price Target

ON Semiconductor is poised for growth, with a projected increase in revenue from its latest-generation Field Stop 7 IGBT technology, anticipating double-digit growth by 2026. The company demonstrated solid performance in Q3, with automotive revenue surpassing expectations by approximately 5%, alongside a notable 72% year-over-year improvement in free cash flow, which constituted 31% of revenue, enabling significant share repurchases. Additionally, ON Semiconductor is effectively capitalizing on emerging markets such as electric and autonomous vehicles, with AI revenue doubling year-over-year and an expectation to reach around $250 million by 2025, which strengthens its long-term growth outlook.

The financial outlook for ON Semiconductor appears negative due to persistent gross margin pressure, with guidance for Q2 indicating a decline to approximately 37.5%, driven by under absorption and aggressive pricing strategies aimed at market share retention. Additionally, the company experienced a notable drop in industrial sales, falling 4% quarter-over-quarter and 16% year-over-year, while missing consensus estimates across key cash flow metrics, including free cash flow that was about $30 million below expectations. Operating margin also faced a substantial decline, dropping 840 basis points to 18.3%, marking the lowest level since the first quarter of 2021, further exacerbated by a decline in gross margin to 40% and increased operating expenses as a percentage of sales.