ON Semiconductor ON shares have lost 28.5% in the year-to-date period against the Zacks Computer & Technology sector’s fall of 5.5% and the Semiconductor - Analog and Mixed industry’s decline of 3.9%.

The company has also underperformed its industry peer NXP Semiconductors NXPI over the same time frame. NXPI shares have returned 1.7% in the year-to-date period.

The underperformance can be attributed to the declining demand across key end markets, as well as ongoing inventory digestion.

ON Underperforms Sector, Industry

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However, ON Semiconductor’s prospects are expected to ride on strong growth in silicon carbide, particularly in utility-scale solar and China BEVs, along with increased demand for intelligent sensing solutions and power delivery for AI data centers.

Hence, investors should ask this question — is the dip in ON’s stock a buying opportunity or a sign of deeper challenges ahead?

ON Strengthens Growth Prospects Through Acquisitions

ON Semiconductor’s focus on SiC technology is paying off. The company saw a 22% sequential increase in SiC revenues in fourth-quarter 2024. The acquisition of Qorvo’s QRVO Silicon Carbide Junction Field Effect Transistor business strengthened ON Semiconductor’s position in the SiC market.

In January 2025, ON completed its $115-million acquisition of the Silicon Carbide Junction Field-Effect Transistor business, including United Silicon Carbide from Qorvo, strengthening its EliteSiC power portfolio to enhance energy efficiency in AI data centers, improve EV battery safety, and support industrial energy storage and circuit breakers.

Building on this momentum, ON is leveraging its expanding presence in EV battery disconnects and solid-state circuit breakers to tap into a total addressable market worth $1.3 billion. With a projected 30% revenue CAGR through 2030, the company is well-positioned to capitalize on the increasing demand for SiC-based power solutions.

Further strengthening its position, in March 2025, ON revealed its plan to acquire Allegro MicroSystems ALGM for $35.10 per share in cash, reflecting a 57% premium from Allegro’s Feb. 28, 2025, closing price. This announcement follows several attempts since September 2024 to engage in constructive discussions regarding the acquisition.

The all-cash transaction valued at $6.9 billion would combine ON’s automotive and industrial power solutions with Allegro’s sensing expertise to create significant value for shareholders and employees.

ON Semiconductor’s Earnings Estimates Trend Down

ON is benefiting from strong growth in silicon carbide and acquisitions. However, challenges remain, with overall demand subdued due to ongoing inventory digestion and slow end-market demand, which is expected to hurt its top-line growth.

For the first quarter of 2025, non-GAAP earnings are envisioned between 45 cents and 55 cents per share.

The Zacks Consensus Estimate for first-quarter 2025 earnings is pegged at 51 cents per share, down 5.5% over the past 30 days, suggesting a 52.78% decline from the year-ago quarter’s reported figure.

ON Semiconductor expects revenues between $1.35 billion and $1.45 billion. The consensus mark for first-quarter 2025 revenues is pegged at $1.41 billion, indicating a 24.54% decline from the year-ago quarter’s reported figure.

ON’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, missing once, the average surprise being 1.80%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

ON Shares are Overvalued

ON Semiconductor shares are currently overvalued, as suggested by the Value Score of D.

ON shares are trading below the 50-day and 200-day moving averages, indicating a bearish trend.

ON Semiconductor Shares Trade Below 50-Day & 200-Day SMAs

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Here’s Why You Should Avoid ON

Despite a broadening portfolio across diverse end markets, ongoing macroeconomic uncertainty and frequent buyouts have been affecting ON Semiconductor’s financial position.

ON is also expected to suffer from weak demand in its end markets as visibility remains limited amid growing geopolitical uncertainty. The company expects geopolitical uncertainty across all geographies and the negative impacts of tariffs to hurt near-term prospects. 

ON saw Japan sales decline sharply on a sequential basis in fourth-quarter 2024. Although China grew 18% sequentially, an early Chinese New Year and extended shutdown period negatively impacted January electric vehicle deliveries from the top China-based automakers, which is expected to hurt ON’s top-line growth prospects.

The semiconductor industry is highly competitive, and ON faces the risk of losing market share to rivals, especially in the automotive, AI and industrial segments. Innovations from competitors or shifts in customer preferences could pose significant risks to ON’s growth trajectory.

ON Semiconductor currently carries a Zacks Rank #5 (Strong Sell), which implies that investors should stay away from the stock for the time being.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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NXP Semiconductors N.V. (NXPI) : Free Stock Analysis Report

Qorvo, Inc. (QRVO) : Free Stock Analysis Report

ON Semiconductor Corporation (ON) : Free Stock Analysis Report

Allegro MicroSystems, Inc. (ALGM) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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