Is Rising Short Interest in ON Semiconductor a Buying Opportunity?

The recent surge in short interest for ON Semiconductor (ON) has sparked debate among investors. As of December 15, 2025, short interest stood at 40.96 million shares, representing 10.21% of the float, with a days-to-cover ratio of 4.67 according to Fintel data. This marks a modest increase from November 28, when short interest was 39.67 million shares (9.89% of float) as reported by MarketBeat. For contrarian value investors, such metrics often signal potential short-covering opportunities-if the fundamentals justify a reversal in sentiment.

Short Interest and Market Sentiment

Short sellers typically bet on declining stock prices, but rising short interest can also reflect overbought conditions or a mispricing that contrarians might exploit. ON's short float percentage of 10.21% suggests significant bearish positioning, yet the days-to-cover ratio of 4.67 implies that short sellers would need nearly five days to liquidate their positions at the current trading volume. This could indicate a fragile short position, vulnerable to a sharp price rebound. Off-exchange short volume of 2.36 million shares on December 16, with a short volume ratio of 76.2%, further underscores active shorting activity. However, if ON's stock begins to outperform expectations, these shorts may face margin calls, triggering a self-reinforcing rally.

Fundamental Resilience Amid Cyclical Headwinds

ON Semiconductor's Q3 2025 results reveal a mixed but resilient business model. Revenue of $1.55 billion, while down 12% year-over-year, outperformed the prior quarter, and operating margins improved to 17.0% (GAAP) and 19.2% (non-GAAP). The Power Solutions Group (PSG), contributing 47.5% of total revenue, maintained a robust 25.9% operating margin. These figures highlight the company's ability to sustain profitability despite broader industry headwinds.

However, the stock's lofty P/E ratio of 71.20-as of December 16-far exceeds its historical median of 46.16, raising concerns about overvaluation.

Earnings per share (EPS) of $0.63 in Q3 2025, while stable, failed to offset a 36.6% year-on-year decline in net profit to $255 million. A discounted cash flow (DCF) model suggests the stock is fairly valued at approximately $55.25 per share, aligning with its current price. This implies limited upside from earnings growth but leaves room for re-rating if the company outperforms soft guidance.

Debt, Industry Position, and Strategic Catalysts

ON's balance sheet remains a key strength. With $3.01 billion in cash and a net debt of just $335.8 million, the company's debt-to-EBITDA ratio of 0.17x is exceptionally low. Free cash flow, averaging 51% of EBIT over three years, further bolsters its ability to manage liabilities. Strategic partnerships, such as the VCore AI collaboration, position ON to capitalize on embedded AI trends, while its focus on automotive and intelligent power solutions offers long-term growth avenues.

Comparisons with peers like TSMC, Micron, and Qualcomm highlight ON's unique positioning. While TSMC dominates advanced node manufacturing and Micron enjoys a turnaround-driven undervaluation, ON's low debt and niche in power solutions make it a compelling alternative for investors seeking exposure to the semiconductor sector's cyclical recovery.

Contrarian Case for ON Semiconductor

For contrarian value investors, the rising short interest in ON could signal a mispricing. Short sellers often overextend during market downturns, creating opportunities for longs when fundamentals stabilize. ON's strong operating margins, manageable debt, and strategic initiatives suggest it is well-positioned to weather near-term volatility. If the company meets or exceeds its 2028 revenue and earnings targets ($7.5 billion and $1.9 billion, respectively), the current short positions could face significant pressure.

However, risks remain. The semiconductor industry's cyclical nature means revenue declines could persist, and the high P/E ratio reflects skepticism about earnings sustainability. Investors must weigh these risks against the potential for a short squeeze and a re-rating of ON's intrinsic value.

Conclusion

Rising short interest in ON Semiconductor is not inherently a buying opportunity, but it does highlight a market that may be overestimating the company's near-term challenges. For contrarians, the key lies in assessing whether the fundamentals justify a reversal in sentiment. With a strong balance sheet, resilient operating margins, and strategic growth catalysts, ON could offer a compelling short-covering play-if the market's pessimism proves misplaced.