Onsemi's latest earnings showed robust gains in revenue and profit, but Bank of America lowered its price target, citing sector valuation pressures even as AI-driven sales accelerate
Onsemi, a major U.S. semiconductor manufacturer, delivered second-quarter results that exceeded Wall Street's expectations for revenue and profit, but the company's stock price target was still reduced by Bank of America as sector valuations come under pressure. The company, which has spent years navigating slowdowns in its core automotive and industrial chip markets, reported that its fastest growth now comes from supplying chips for artificial intelligence (AI) data centers-a shift that could reshape its long-term outlook.
For the quarter ended June 30, Onsemi posted revenue of $1.604 billion, a 9% increase from the same period last year. Non-GAAP diluted earnings per share rose to $0.74, up from $0.53 a year earlier, while free cash flow surged to $425.4 million, nearly four times the prior-year figure. The company also reported a 150% jump in cash from operations, reflecting stronger demand for its products in AI-driven applications. Management said that revenue, gross margin, and earnings per share all finished above the midpoint of guidance, with AI data center sales leading the way.
Despite these gains, Bank of America analyst Vivek Arya reaffirmed a Buy rating on Onsemi but lowered the firm's price objective to $120 from $138, according to a note cited by TheStreet. The new target, based on an $80.40 share price at the time of the note, still implies significant upside, but the reduction reflects a more conservative valuation multiple for the sector. Arya's updated model uses a 20-times multiple on estimated 2028 earnings, down from the previous 32-times multiple on 2027 estimates, citing recent contraction in semiconductor stock valuations.
AI and Data Center Momentum
Onsemi's management now expects its AI data center revenue to more than double in 2026, with expanded participation in Nvidia's MGX ecosystem and additional platform wins. The company guided for third-quarter revenue between $1.65 billion and $1.75 billion, and non-GAAP EPS between $0.81 and $0.93-both above consensus estimates cited by Bank of America. CEO Hassane El-Khoury highlighted that demand for AI-related chips is driving the company's outperformance, even as automotive and industrial markets begin to recover.
Bank of America's long-term projections for Onsemi are bullish on earnings growth. Arya raised his 2026 EPS estimate to $3.20 and his 2027 estimate to $4.57, with forecasts reaching $6.15 in 2028 and nearly $12 by 2030. Revenue is projected to climb from $6.54 billion in 2026 to $12.67 billion in 2030, an 18% compound annual growth rate. The most aggressive growth is expected in AI and data center sales, which Arya models rising from $250 million in 2025 to $4.68 billion in 2030-a 67% CAGR. Margins are also expected to improve, with gross margin potentially reaching 53% and operating margin approaching 40% by 2030, driven by higher factory utilization, product mix, and restructuring.
Risks and Strategic Moves
Despite the optimistic outlook, Bank of America flagged several risks. Rising input costs, including substrates and gold, could pressure gross margins. The company's legacy exposure to consumer and mobile markets, as well as execution risk tied to its planned $7 billion all-stock acquisition of Synaptics, add further uncertainty. The Synaptics deal, announced in June and expected to close in mid-2027 pending regulatory and shareholder approval, is intended to expand Onsemi's capabilities in connected compute and edge AI.
While the latest quarter signals that Onsemi's earnings recovery is underway, the longer-term forecast depends on sustained AI demand and successful integration of new acquisitions. The $120 price target remains bullish, but the more consequential call is whether Onsemi can achieve the projected $12 in annual earnings per share by 2030. For context, a similar dynamic played out when Bank of America maintained a positive outlook on SpaceX despite concerns over capital spending and cash flow, as detailed in this related analysis.
According to company filings, Onsemi's market capitalization stood at approximately $35 billion as of early August 2026. The company's shares have traded in a wide range over the past year, reflecting both optimism about AI-driven growth and caution over sector-wide valuation resets. Investors considering semiconductor stocks should weigh the potential for rapid earnings expansion against the risks of cyclical demand, input cost volatility, and integration challenges from large acquisitions.
Semiconductor companies like Onsemi operate in a highly cyclical industry, where demand for chips can swing sharply based on trends in technology, consumer electronics, automotive production, and industrial automation. The recent surge in AI and data center investment has created new growth opportunities, but it also introduces greater competition and the need for ongoing capital investment. Investors should understand that while AI-driven demand can boost revenue and margins, it also exposes companies to rapid shifts in technology standards and customer requirements. Strategic acquisitions, such as Onsemi's planned purchase of Synaptics, can accelerate growth but often come with integration risks and the potential for unforeseen costs.
