ON Semiconductor looks fairly valued, and in this market, that’s becoming an issue.
Genuine undervaluation is getting harder to find. My DCF is standalone and excludes the Synaptics deal. If you guys see an opportunity I’m missing, drop the ticker in the comments - I’ll consider modeling it next.
KEY ASSUMPTIONS:
Explicit average 5Y/5Y growth @ 13.2%/7.8%
Long-term growth in perpetuity @ 2.6%
EBITDA Margin expansion 25%->39% by Y10
WACC @ 12.2%
Adj. EBITDA exit multiple of 10.7
Tax rate 17% - forward-looking stat and in line with OECD’s Pillar 2 “Global Minimum Tax”
The input that drives reinvestment is near-term expected Sales to Capital ratio = 2.5, linearly regressed to the Semiconductor average rate of 1.15 in Y10
GROWTH PROFILE
ON Semiconductor’s growth profile has clearly inflected out of the 2023-2025 auto/industrial destocking trough: Q2 2026 revenue came in at $1.60 billion, up 9.2% year-on-year, with Q3 2026 revenue guided to $1.65-$1.75 billion, and sell-side analysts expecting roughly 10.7% growth over the coming year. The growth mix has shifted decisively toward AI infrastructure, while Power Solutions Group revenue rose 19% year-over-year in Q2, and management now expects AI data center revenue to more than double in 2026, supported by new design wins with NVIDIA MGX, Great Wall, and AWS, alongside silicon carbide revenue in China expected to grow 60–70% year-over-year on share gains with customers like Geely. The legacy auto and industrial base is recovering on a slower, steadier path. CFO guidance calls for auto up low-single digits and industrial roughly flat in Q3 as channel inventory normalizes. Layered on top is the pending $7 billion all-stock acquisition of Synaptics, which is expected to close in mid-2027 and would expand Onsemi’s addressable market by $30 billion to $243 billion by 2030, pushing the growth story beyond power and sensing into edge/physical AI compute, with management guiding to non-GAAP EPS accretion within 18 months of close and $200 million in annual synergies. Net-net: a business moving from a cyclical-recovery story to one increasingly levered to AI-driven secular demand, with the September 16, 2026 Analyst Day likely to be the next catalyst for updated long-term growth targets.
VERDICT
Model suggests that the stock is trading close to my intrinsic value estimate.