ON Semiconductor Stock Looks Expensive Until You Price Its Fuller Factories

ON Semiconductor (ON) makes power and sensing chips for cars, industrial equipment and AI data centers. The stock trades at about 27.6 times trailing adjusted earnings, meaning normalized net income with stock-based compensation added back. That basis is meant to sit closer to the one analysts use in their forecasts than GAAP earnings would, though the two are not defined identically. At that multiple the stock looks expensive. But the trailing year was weak, and the weakness is fading.

Why ON Looks Expensive On A Year Of Shrinking Sales

Over the trailing twelve months, revenue of $6.2 billion fell 3.1%. Part of that fall was chosen. The company has exited about $900 million of annual non-core revenue over the last few years, and finished the last of those exits in Q2 2026.

The shrinking sits in the older part of the trailing twelve months. In Q2 2026, revenue grew 9.2% year over year and utilization rose to 83% from 77%.

But ON Looks Cheaper On The Earnings Analysts Expect Two Years Out

On analysts’ consensus earnings for 2026, the same price is about 23.7 times. On their consensus for 2027, it is about 17.2 times. Those are forecasts, not results.

Analysts’ 2027 estimates run from $3.99 to $4.79 a share. The highest sits about 20% above the lowest, a wide spread for a year that has not started.

So What Has To Go Right In ON Semiconductor’s Factories?

Margins have to keep widening. Analysts expect earnings to grow about 37.5% a year from the trailing twelve months to 2027, against revenue growth of about 12.7% a year. Part of that gap reflects trailing and forecast earnings being defined differently. But analysts’ 2026 and 2027 forecasts on their own still have earnings growing faster than revenue, so consensus assumes margins keep expanding.

Management’s case starts in the chip plants. Adjusted gross margin was 39.3% in Q2 2026, and the company has guided Q3 2026 to 40% to 42%, a step up. The CFO says utilization takes about two quarters to reach the income statement, so the jump in Q2 utilization reaches margins around Q4 2026.

Demand is the other half. Management expects AI data center revenue to more than double in 2026, and lead times have stretched from about 27 weeks to around 32.

One caution is pricing. A second round of price increases is under way to offset rising input costs, the CEO says those costs are not coming down, and the CFO says pricing did little for Q2 2026 gross margin.

Automotive, at $781 million of Q2 2026’s $1.6 billion of revenue, is still the largest market. The company has also agreed to buy Synaptics, a deal it expects to close in mid-2027, inside the year analysts are pricing.

So the 17.2 times is a price on margins the company has not reported yet. The first check is whether Q3 2026 gross margin lands inside that guide.

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