Here’s The Real Reason Wall Street Cut ON Semiconductor Stock’s Price Target
ON Semiconductor Logo in Front of Computer By Tigarto ON Semiconductor (ON) delivered a quarter that usually triggers analysts’ price upgrades. Revenue and earnings beat Wall Street’s expectations, free cash flow nearly quadrupled from a year ago, and management sounded optimistic about accelerating AI data center opportunities. Yet, the opposite happened, with many analysts lowering…
ON Semiconductor Logo in Front of Computer By Tigarto
ON Semiconductor (ON) delivered a quarter that usually triggers analysts’ price upgrades. Revenue and earnings beat Wall Street’s expectations, free cash flow nearly quadrupled from a year ago, and management sounded optimistic about accelerating AI data center opportunities. Yet, the opposite happened, with many analysts lowering their respective price targets for ON stock. The stock even slipped 4% after earnings, even though it has climbed 45% year-to-date (YTD).
Here’s what happened.
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Why Did Analysts Cut Their Price Targets?
ON Semiconductor designs and manufactures power and sensing semiconductor chips that help electric vehicles, AI data centers, industrial equipment, and energy infrastructure convert, manage, and use electricity more efficiently. Looking at ON Semiconductor’s Q2 earnings, it’s difficult to criticize it. Yet, B. Riley maintained its “Buy” rating but reduced its target from $135 to $127, pointing to sector multiple compression rather than any deterioration in ON Semiconductor’s business.
B. Riley wasn’t the only firm to trim the price targets. Bank of America also lowered its price target to $120 from $138, even after raising its 2026 and 2027 adjusted EPS estimates by 3% and 7%, respectively. The firm said the lower target simply reflects a lower valuation multiple as semiconductor stocks have undergone sector-wide multiple compression, not weaker earnings power. BofA maintained its “Buy” rating.
Needham reached a similar conclusion, cutting its target to $116 from $130, while reiterating its “Buy” rating. Analyst Quinn Bolton pointed to ON Semiconductor’s stronger-than-expected quarter, improving demand trends, healthier book-to-bill ratio, and longer lead times, all of which boost revenue visibility well beyond 2027 and 2028. Similarly, Stifel Nicolaus analyst Tore Svanberg also reduced the price target to $90 from $107. Other firms, including Truist Financial, Citi, Mizuho Securities, and Wells Fargo, also lowered their price targets.
Importantly, none of these firms downgraded the stock. They maintained their “Buy” or “Hold” ratings. In short, analysts haven’t turned bearish on the stock. They lowered the price targets because overall sector valuation multiples have come down, and not because their confidence in ON Semiconductor’s earnings or long-term growth has weakened.
The Quarter Didn’t Give Wall Street a Reason to Turn Bearish
In fact, the second quarter gave analysts no reason at all to turn bearish. Revenue increased 9.2% year-over-year (YoY) to $1.5 billion, while adjusted earnings jumped 39.6% to $0.74 per share. Management emphasized that recovery is progressing well, supported by continued strength in AI data centers and improving demand across several end markets. Notably, strengthening conditions in China, battery electric vehicles, automotive applications, energy infrastructure, medical markets, and industrial automation are all contributing to the rebound. As a result, the business anticipates that AI data center revenue would more than double by the end of 2026.
In the second quarter, ON expanded its participation in Nvidia’s (NVDA) MGX ecosystem by supplying advanced power systems for next-generation AI servers. It also secured two power supply platform wins from Great Wall, a leading supplier to China’s cloud and AI infrastructure markets. These deals are expected to boost the company’s silicon carbide revenue tied specifically to AI data center applications by over 60% YoY in 2026. China remained a bright spot, with automotive revenue in the market up 13% in the first half of 2026. Management now expects China’s automotive silicon carbide revenue to expand by 60% and 70% this year.
Furthermore, ON Semiconductor expects its products launched over the past two years, particularly the automotive Ethernet offerings, sensing technologies, and its Treo analog mixed-signal platform, to become increasingly important growth drivers. As a result, management now expects third-quarter revenue to increase by 13% at midpoint, to range between $1.65 billion and $1.75 billion, with adjusted earnings increasing by 38% YoY to land between $0.81 and $0.93.
Despite $34 million in capital expenditures, the company generated $425 million in free cash flow, nearly four times the year-ago level. ON also returned $332 million to shareholders through share repurchases. The company ended the quarter with $3.8 billion in cash, equivalents, and short-term investments. While ON’s Q2 earnings did not show extraordinary growth, they also didn’t show weaker fundamentals or slowing business. Instead, revenue is recovering, with expanding profit margins. Free cash flow is improving rapidly as AI demand is accelerating. The automotive market is showing signs of recovery, particularly in China. Management also remains confident that demand and profitability will improve further over the remainder of the year.
However, the market appears to be reassessing valuations across the semiconductor industry after an extended AI-driven rally. While ON’s management discussed improving demand, the company hasn’t completely recovered. Industrial growth was modest, as weakness in traditional industrial markets continued to weigh on the segment. For the full year, however, analysts expect ON’s earnings to increase by 36%, followed by another 41% increase in 2027. To summarize, the business appears to be improving. But it would be wise to watch the company’s recovery over the next few quarters before investing in this AI stock.
Despite Price Cuts, Analysts Are Still Supportive of ON Stock
Overall, Wall Street maintains a consensus “Moderate Buy” rating. Of the 28 analysts covering ON stock, nine rate it a “Strong Buy,” two say it is a “Moderate Buy,” and 17 rate it a “Hold.” Notably, there are no sell ratings. The average target price for the stock is $105.46, which suggests 34% upside from current levels. Although many analysts lowered their price target, Susquehanna analyst Christopher Rolland maintained his “Buy” rating and the high price target of $150, which implies an upside potential of 90% over the next 12 months.
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On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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