Is ON Semiconductor (ON) a Buy, Sell, or Hold in a Volatile Semiconductor Market?

The semiconductor industry remains a barometer of global economic health, with ON Semiconductor (ON) navigating a landscape marked by cyclical demand, supply chain adjustments, and the uneven adoption of emerging technologies like electric vehicles (EVs) and artificial intelligence (AI). For investors, the question of whether ON is a buy, sell, or hold hinges on reconciling its recent earnings resilience with structural headwinds and valuation metrics that suggest caution.

Earnings Resilience Amid Revenue Softness

ON Semiconductor's Q3 2025 results underscored its ability to exceed expectations despite a challenging macroeconomic environment. The company reported earnings per share (EPS) of $0.63, surpassing the consensus estimate of $0.59 by 6.8%. Quarterly revenue of $1.55 billion, while down 12% year-over-year, still outperformed analyst projections of $1.52 billion. This divergence between earnings and revenue highlights a key trend: ON is managing costs and gross margins effectively, even as demand in traditional markets like automotive and industrial sectors remains uneven.

However, the company's Q1 2025 guidance painted a more cautious picture. Management projected revenue between $1.35 billion and $1.45 billion, significantly below the $1.69 billion expected by the market. This shortfall was realized in Q1, where revenue fell 22% year-over-year to $1.45 billion.

The disconnect between earnings strength and revenue volatility reflects the semiconductor sector's inherent cyclicality, where short-term demand fluctuations can outpace long-term growth narratives.

Valuation: A Tale of Two Metrics

ON's valuation metrics present a mixed picture. The stock trades at a forward price-to-earnings (P/E) ratio of 21–23, a steep discount to the industry average of 42–44. This suggests the market is pricing in a significant margin of safety, particularly for a company with a history of earnings resilience. However, the price-to-earnings-to-growth (PEG) ratio complicates this narrative. At 2.43–2.92, ON's PEG ratio exceeds the industry average of 2.14–2.19, indicating that its current valuation may not fully justify its projected earnings growth of 41.54% over the next year.

This valuation disconnect is further highlighted by comparisons to peers. For instance, ON's forward P/E of 21.69 is significantly lower than Monolithic Power Systems' (MPWR) 55.29, while its PEG ratio of 2.51 is more favorable than MPWR's 2.74 according to market data. These metrics position ON as a more attractive value stock within its sector, but they also underscore the broader market's skepticism about the sustainability of its earnings growth.

Strategic Rebalancing and Long-Term Prospects

ON Semiconductor's management has signaled a strategic pivot toward high-margin, high-growth segments. The AI Data Center segment, for example, saw revenue more than double year-over-year in Q1 2025, reflecting the company's ability to capitalize on the AI boom. Additionally, the acquisition of Qorvo's SiC JFET technology portfolio and investments in platforms like Treo and vGaN aim to strengthen ON's position in EVs and power electronics. These initiatives are critical, as the company's long-term revenue growth is projected at a modest 4.7% annually-a pace lagging behind the broader US market's 10.5% forecast.

The company's capital allocation strategy further reinforces its defensive positioning. In Q1 2025, ON returned 66% of its free cash flow to shareholders through share repurchases, a move that could enhance shareholder value in a low-growth environment. However, this approach also raises questions about reinvestment in innovation, particularly as rivals like MPWR and Infineon Technologies ramp up R&D spending to capture AI and EV markets.

Zacks Rank and Analyst Sentiment

The Zacks Rank of #3 (Hold) for ON Semiconductor aligns with the mixed signals from its financial and valuation metrics according to analyst reports. Analysts appear to view the stock as neither a compelling buy nor a clear sell, reflecting uncertainty about the company's ability to navigate sector-wide headwinds. This sentiment is echoed in the consensus revenue forecast for 2026, which projects $6.33 billion-a 2.3% improvement over the past 12 months but far below the double-digit growth rates seen in the AI and EV sectors.

Conclusion: A Hold in a Volatile Sector

ON Semiconductor's earnings performance and valuation discounts offer a degree of downside protection in a volatile market. However, its revenue declines, slower growth projections, and a PEG ratio that suggests overvaluation relative to growth prospects argue against aggressive buying. The company's strategic investments in AI and power electronics are promising, but their payoff remains uncertain in the near term. For now, a "Hold" recommendation is warranted, as investors await clearer signals about the sustainability of ON's earnings resilience and its ability to capitalize on high-growth opportunities.