Hook / Thesis (short):
ON Semiconductor is showing the kind of stop-and-restart earnings pattern I watch for in cyclical semiconductor names. After a painful loss earlier in the fiscal year, the company delivered two straight profitable quarters — and generated positive operating cash flow — which argues that underlying end markets (automotive electrification, ADAS, industrial power) are stabilizing. At the current quote (~$62.90 on 01/23/2026) the stock is discounting a gentle recovery. For nimble traders I prefer a long swing position: the setup is asymmetric if you (a) buy with a disciplined stop and (b) size for cycle risk.
Why the market should care
ON is the worlds second-largest power-chipmaker and the leading supplier of image sensors for automotive. That combination matters: power semiconductors are direct exposure to EV and charging infrastructure demand, while image sensors tie ON to ADAS and autonomy upgrades that have multi-year content growth. The company has pivoted toward high-growth, high-content automotive and industrial segments while keeping a hybrid manufacturing model to flex capacity.
The business snapshot and recent fundamentals
Key operating facts from the most recent reported quarter (fiscal Q3 ended 10/03/2025) give a concrete baseline:
- Revenues: $1,550.9 million (Q3 FY2025)
- Gross profit: $587.2 million; gross margin recovering alongside volumes
- Operating income: $264.4 million; net income attributable to parent: $255.0 million; basic EPS $0.63
- Operating cash flow (quarter): $418.7 million
- Balance-sheet items: assets $13.0102 billion; long-term debt $3.3799 billion; equity attributable to parent $7.9054 billion; inventory $2.0479 billion
Context matters: earlier in the fiscal year (Q1 FY2025, period ended 04/04/2025) ON reported a one-time large operating loss (operating loss -$573.7 million, net loss -$485.2 million). That event appears idiosyncratic - likely a charge/impairment or restructuring - because the company swung back to profitability in Q2 and Q3 (Q2 FY2025 net income $170.3 million, operating income $193.4 million). The sequencing - large charge, then two profitable quarters and positive operating cash flow - is consistent with a trough and early recovery in cyclical demand.
Why I think a cyclical recovery is around the corner
There are three practical drivers here:
- Auto content growth - ON's image sensors and power devices are embedded in EVs, ADAS and vehicle electrification architectures. As OEMs continue to ramp EV programs and ADAS content per vehicle increases, ON benefits organically.
- Power transition wins - The company announced vertical GaN semiconductors on 10/30/2025, a technology that can materially improve power-conversion efficiency in EV chargers, datacenter power and industrial systems. New product cycles here can meaningfully re-rate margins over time.
- Capital allocation - The company has been active buying back stock (coverage commentary on 11/04/2025), which supports EPS recovery and provides a valuation floor while revenues normalize.
Supporting numbers and trend logic
The measurable improvement is plain in the sequential numbers. After the large loss in Q1 (04/04/2025), ON posted:
- Q2 FY2025 (ended 07/04/2025): revenues $1,468.7M and operating income $193.4M;
- Q3 FY2025 (ended 10/03/2025): revenues $1,550.9M and operating income $264.4M.
From a cash perspective the company generated $418.7M of operating cash flow in Q3, partially funding investing activity (-$151.2M) and share repurchases (-$322.2M of financing outflow). Net cash flow for the quarter was roughly neutral (-$55.7M). That combination - positive operating cash and active buybacks - shows management is confident enough in cash generation to return capital even as the cycle rebalances.
Valuation framing
The public quote in the market snapshot shows ON trading around $62.90 (last trade 01/23/2026). The dataset does not include a current market capitalization, so I am purposely avoiding a precise P/E calculation. Instead, frame valuation behaviorally:
- The share price is trading close to its 52-week high (~$63.07), which implies the market has already priced in near-term stabilization.
- Historical peak operating quarters (2023 periods showed revenue prints above $2.0B in some quarters) imply ON can earn substantially more in a full upcycle than the recent troughs.
- Given the balance sheet (long-term debt ~$3.38B and sizable equity) and positive free cash generation in recent quarters, the path to multiple expansion is credible if revenue and margin recovery continue.
In short: the stock looks like a classic cyclical value/recovery name - you want earnings normalization and product inflection to arrive; if they do, multiple expansion plus buybacks should be a tailwind.
Catalysts to watch (2-5)
- OEM EV and ADAS order flow updates (ongoing during 2026) - stronger vehicle production plans would directly translate to power and image-sensor content growth.
- Commercial adoption or customer design-wins for vertical GaN (announced 10/30/2025) - first meaningful revenue recognition or design-win disclosures would be a material positive.
- Quarterly margin improvement and operating cash consistency - look for sustained operating income and positive operating cash flow in the next two reported quarters.
- Buyback cadence and size - management continuing buybacks (public coverage 11/04/2025) provides an EPS floor and could accelerate return if stock dips.
Trade idea - concrete plan (actionable)
Trade direction: Long (swing trade, time horizon 3-6 months). Treat this as a cyclical recovery bet and size positions accordingly (e.g., 1-3% of portfolio per the trader's risk rules).
Entry
- Primary entry (momentum): Enter 62.00 - 64.50 (market or limit depending on execution). Rationale: buy near current price to participate in continued momentum if Q4 results or industry data points are constructive.
- Alternate entry (value): Add on pullback to 56.00 - 58.00. Rationale: a ~7-10% pullback from current levels gives a better risk/reward and reduces exposure to short-term volatility.
Stop / Risk control
- Initial stop-loss: 52.00 (roughly 17% below primary entry). This level is below recent consolidation and gives defined downside while protecting capital if the cyclical recovery fails to materialize.
- If using the alternate entry at 56-58, use a tighter stop at 50.00 (10-12% downside from that level).
Targets
- Target 1 (near-term): $75.00 - a ~19-20% upside from current quote. This captures a re-rating as volumes and margins normalize and buybacks amplify EPS.
- Target 2 (if cycle rerates): $95.00 - a ~50% upside scenario if design wins, GaN adoption and auto recovery combine to materially lift forward earnings.
Position management: Take partial profits at Target 1 (e.g., sell 40-50% of position), move stops on the remainder to breakeven, then trail stops to lock gains on the run to Target 2.
Risks and counterarguments
The trade thesis is explicitly cyclical and has several obvious risks. If you take this trade, understand these scenarios could invalidate the setup quickly:
- Macro / OEM destock risk - Inventory on ON's balance sheet was $2.0479 billion in the latest quarter. High inventory can be a double-edged sword: if OEMs slow production or push out orders, ON could face margin pressure and inventory write-downs.
- Cyclicality and semiconductor oversupply - The semiconductor market is famously cyclical. If end markets (especially auto/industrial) weaken, pricing and utilization could fall, erasing recent margin gains.
- Execution on new technology - Vertical GaN is strategic but not guaranteed to drive near-term revenue. Commercial adoption takes calendar quarters and meaningful design wins are the real proof-point.
- Leverage and interest-rate sensitivity - Long-term debt is material (~$3.38B). If margins compress and rates remain elevated, net interest and refinancing risks could weigh on free cash flow.
- One-time charge recurrence - The large operating loss reported in Q1 FY2025 (-$573.7M) highlights the possibility of future non-recurring hits that can disrupt EPS smoothing and market confidence.
Counterargument (why the trade might be wrong)
The rebound in Q2/Q3 could be temporary and driven by customer pull-ins or timing; if the real structural demand from EVs/ADAS takes longer to scale, ON may re-enter a prolonged trough and the current price would be a premature rally. In that case, multiple contraction would follow and the trade would fail.
What would change my mind (triggers to flip to neutral or negative):
- Another quarter of declining revenues or negative operating cash flow would force me to exit and reassess.
- Material margin erosion or a new guidance cut from management on automotive content growth would invalidate the recovery thesis.
- Large unscheduled inventory write-downs or renewed urgency to deleverage the balance sheet (sizable debt repayment pressure) would make the stock unattractive at these levels.
Conclusion
ON Semiconductor is a classic cyclical recovery candidate: it has scale in power and image sensors, recent results show sequential improvement (Q2 and Q3 FY2025 profitability and operating cash generation), and management is using buybacks to support shareholder value. The business is exposed to durable secular trends in EVs, ADAS and power conversion, and the vertical GaN announcement is a genuine product-level catalyst that could lift margins over time.
For traders comfortable with semiconductor cyclicality, I favor a long swing position with disciplined stops and explicit profit-taking. Enter near the market or on disciplined pullbacks, use the stop levels above to limit downside, and treat any run toward the $75-$95 range as an opportunity to realize gains and reassess the longer-term structural story.
Date references in this write-up: 10/30/2025 (vertical GaN announcement), 11/04/2025 (buyback coverage), and market snapshot dated 01/23/2026.
Quick reference - Trade parameters
- Direction: Long
- Entry: 62.00 - 64.50 (primary) or 56.00 - 58.00 (pullback add)
- Initial stop: 52.00 (primary entry) / 50.00 (pullback entry)
- Targets: 75.00 (take partial profits), 95.00 (aggressive)
- Horizon: 3-6 months (swing)
Final note: This is a tactical trade built around cyclical normalization and product-inflection catalysts. Size modestly, keep stops honest, and update the plan with each earnings release and design-win disclosure.