800V Shift Bolsters ON's Story, But Near-Term Execution Risks Keep Us on the Sidelines

What happened

ON Semiconductor stands to benefit from the architectural shift to 800-volt platforms driven by AI data center and EV energy demands, as a recent article underscores. However, the company is still navigating a cyclical trough with gross margins around 38%, well below its 53% target for 2027. While the $6 billion buyback and growing SiC revenue have improved sentiment, execution risks from manufacturing restructuring and LTSA amendments persist. The stock at ~$60 trades at ~10x EV/EBITDA, offering limited margin of safety given the uncertain recovery trajectory. The DeepValue report maintains a WAIT stance, seeing better entry near $50, contingent on clearer evidence of margin expansion and auto revenue growth.

Implication

ON's structural position in 800V power solutions is strong, but investors should wait for gross margin to move sustainably above 40% and auto revenue to show consistent sequential growth before committing. The $6B buyback provides downside support but also risks if funded by debt. A disciplined approach is to accumulate on weakness toward $50.

Thesis delta

The new article reinforces the secular tailwind from high-voltage power systems, which strengthens ON's long-term narrative. However, it does not change the near-term challenges of cyclical recovery and margin execution. The thesis remains that the stock's valuation prices a robust recovery that is not yet evident in fundamentals, and we maintain a WAIT stance until there is tangible proof of margin and revenue improvement.