We came across a bullish thesis on ON Semiconductor Corporation (ON) on Substack by Charly AI. In this article, we will summarize the bulls’ thesis on ON. ON Semiconductor Corporation (ON)’s share was trading at $55.61 as of Jan 21st. ON’s trailing and forward P/E were 13.80 and 13.14 respectively according to Yahoo Finance.
A semiconductor chip with intricate circuitry, highlighting the company’s tech capabilities.
Onsemi, a semiconductor manufacturer, is strategically positioned in high-growth sectors such as automotive, industrial automation, and clean energy. The company’s key revenue streams include automotive (54% of Q3 2024 revenue), industrial (25%), and energy & other industries (21%). Onsemi’s automotive segment stands out for powering electric vehicles (EVs), with its chips supporting energy-efficient charging and advanced driver assistance systems (ADAS). In industrial automation, Onsemi’s power solutions drive automation, and in energy, the company facilitates solar power conversion and enhances data center energy efficiency. Despite Onsemi’s strong positioning, its end markets have been negatively impacted by macroeconomic factors, such as the economic slowdown, high interest rates, and weakened demand.
Though Onsemi’s short-term outlook is less promising, with analysts rating it a “SELL” for the next 3 to 6 months, its long-term prospects remain solid. The company has maintained positive free cash flow (14% of revenue) and a strong cash position of $2.4 billion as of Q3 2024, allowing it to make strategic acquisitions during the downturn. Notably, Onsemi acquired infrared imaging technology and Silicon Carbide (SiC) chip assets, bolstering its leadership in these high-demand sectors. The company has strategically downsized manufacturing capacity and exited price-sensitive segments to focus on its growing presence in EVs and data centers, where it leads in ADAS and industrial sensor solutions.
Looking ahead, Onsemi’s end markets are expected to recover by late 2025, with the EV market benefiting from regulatory pressures and government subsidies. Onsemi’s current stock price presents an attractive entry point, trading at a P/E of 13, with a market cap of $23 billion. At $55, the stock offers significant upside potential, with an estimated exit price of $67. Investors seeking undervalued stocks with strong cash flow and exposure to high-growth industries may find Onsemi an appealing opportunity.
ON Semiconductor Corporation (ON) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 45 hedge fund portfolios held ON at the end of the third quarter which was 45 in the previous quarter. While we acknowledge the risk and potential of ON as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ON but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.