Global Alpha – Buy ON Semiconductor Corp (NASDAQ:ON)

Positives
At around $58 per share, onsemi offers an attractive long-term entry point. The company is strategically positioned in two major growth sectors: AI and EVs. It recently announced a partnership with NVIDIA to supply power management chips for next-generation AI data centers. These chips are designed to reduce power loss and cooling costs by up to 30%, supporting the shift toward more efficient 800V DC infrastructure. With global AI data center investment expected to surpass $200 billion annually by 2027, this deal could provide meaningful recurring revenue.

On the EV front, onsemi is a key supplier to Tesla, providing SiC components used in the Cybertruck and Model Y. SiC technology improves EV range and charging speed—core performance metrics in the race for EV dominance. Despite Tesla’s reported efforts to reduce SiC usage, onsemi’s innovation and production scale continue to meet Tesla’s performance and cost needs. The EV semiconductor market is forecast to grow at over 25% CAGR through 2030, providing long-term tailwinds.

The company also benefits from the U.S. CHIPS Act, with tax credits and subsidies supporting its $2 billion expansion in New Hampshire. Its U.S.-based supply chain reduces geopolitical risk and aligns with domestic sourcing mandates.

Risks
Short-term, the company is navigating a cyclical slowdown, with projected FY25 revenue and EPS declines. Margins have also compressed, and higher domestic manufacturing costs pose challenges. However, strong government support, product diversification, and resilient end-markets help mitigate these risks.