Why ON Semiconductor Could Be a Smart Long-Term Investment Today

A Rare Combination: Growth Potential with Reasonable Valuations

When evaluating semiconductor stocks for a decade-long holding period, most investors face a difficult choice: accept premium valuations for established players or take on speculative risk with emerging competitors. ON Semiconductor (NASDAQ: ON) presents an intriguing alternative that breaks this pattern.

This company specializes in intelligent power and sensing solutions, with deep roots in the automotive and industrial sectors. What makes ON Semiconductor particularly interesting right now is its involvement in two transformative technology waves: the electrification of transportation through electric vehicles (EVs) and the infrastructure buildout for artificial intelligence and data centers.

Understanding the Current Valuation Opportunity

The market is currently pricing ON Semiconductor at 21 times projected 2025 earnings and 14.5 times estimated free cash flow (FCF). These multiples may appear modest when compared to peers in the semiconductor industry, but they don’t fully capture the company’s growth trajectory.

Wall Street consensus points to 2024 as a cyclical trough year for the business. Looking ahead, analysts expect earnings to expand by approximately 25% in 2025, with free cash flow growth following closely behind. This recovery pattern suggests the market has already priced in considerable pessimism.

Management’s capital allocation strategy reinforces the bullish case. The company recently green-lit a $6 billion share buyback program spanning three years, signaling confidence in valuation levels. This repurchase activity has demonstrably reduced share count over recent years, mechanically boosting per-share metrics and allowing existing shareholders to own a larger piece of future earnings growth.

Structural Growth Drivers: Beyond Today’s Cyclical Weakness

The recent slowdown in ON Semiconductor’s key markets deserves context. Revenue from automotive applications has plateaued as EV adoption followed a different trajectory than originally forecasted, while industrial demand has cooled across the sector. These headwinds, however, appear temporary rather than structural.

In automobiles, the company serves multiple high-demand applications: power management and sensing systems for EVs, advanced driver assistance systems (ADAS), and various lighting and powertrain components. Strategic partnerships underscore market confidence—long-term supply agreements with Volkswagen, premium EV manufacturer ZEEKR, and BMW demonstrate its competitive moat in this segment.

The industrial business spans EV charging infrastructure, industrial automation, machine vision systems, and smart infrastructure projects. Each of these categories benefits from secular trends that transcend typical business cycles.

The most exciting near-term opportunity may be the company’s growing footprint in AI and data center power solutions. As a development partner with Nvidia, ON Semiconductor is positioned to supply critical power delivery components for next-generation data center systems arriving around 2027. Current projections suggest this segment could generate roughly $250 million of the company’s anticipated $6 billion in 2025 revenue, but this represents just the beginning of what could become a significant revenue stream.

When Will Growth Reignite?

Predicting the precise timing of the next expansion phase remains difficult, and short-term volatility should be expected. However, ON Semiconductor’s CEO has suggested that both automotive and industrial end markets may have already bottomed out. Historical precedent indicates that mature industrial sectors often reaccelerate gradually rather than dramatically, creating opportunities for patient investors.

The EV transition itself remains in early stages globally. Recent multi-billion-dollar capital commitments from Ford and others signal a strategic pivot toward profitable EV production and affordable vehicle platforms—a shift that will require sustained investment in power electronics and sensor technologies that form the backbone of ON Semiconductor’s value proposition.

The Investment Case for the Long-Term Holder

At current valuations, ON Semiconductor offers meaningful downside protection combined with asymmetric upside potential. The stock trades at reasonable multiples while the company operates in secular growth markets. The combination of financial discipline (demonstrated through buybacks), reasonable valuation, and exposure to multiple structural growth narratives makes this an equity worth considering for investors with a 10-year time horizon and comfort with near-term volatility.

The semiconductor sector will continue evolving, but companies well-positioned in automotive electrification and data center infrastructure should find sustained tailwinds ahead.