Why ON Semiconductor Deserves a Spot in Your Portfolio for the Next 10 Years

The Investment Case: Why Now?

When interest rates squeeze auto manufacturing and industrial sectors simultaneously, most investors panic. But seasoned long-term players see opportunity. ON Semiconductor (NASDAQ: ON) is currently trading at 14 times forward free cash flow consensus estimates—a valuation that offers meaningful downside protection while leaving room for substantial upside as market conditions normalize.

The specialty chipmaker is experiencing temporary headwinds, yet the fundamentals supporting its future remain intact. Think of it as a temporary price dislocation in a business with secular tailwinds.

Breaking Down ON Semiconductor’s Revenue Engine

The company generates revenue across three distinct channels: automotive (55% of 2024 revenue), industrial operations (25%), and other segments (20%).

Its product suite spans power semiconductors, intelligent sensors including imaging technology, and analog and mixed-signal integrated circuits. Within automotive, the company has significant exposure to silicon carbide (SiC) semiconductors—the critical component powering next-generation electric vehicles. Beyond EVs, the portfolio includes exposure to charging infrastructure, industrial automation, machine vision systems, and smart infrastructure solutions.

The “other” category encompasses two growth engines: artificial intelligence and data center expansion, plus consumer electronics. Notably, the company collaborates with Nvidia on next-generation data center architectures scheduled for deployment around 2027.

The Near-Term Squeeze vs. the Long-Term Prize

The current environment presents the classic risk-reward asymmetry that rewards patient capital. A contraction in EV investment—driven by elevated borrowing costs and ongoing losses manufacturers face on battery-powered vehicles—has compressed near-term demand. Industrial spending has similarly softened. Sales momentum has decelerated since late 2023, creating visible headwinds.

Yet the structural story remains compelling. The automotive industry is irreversibly transitioning to electrification. Major manufacturers including Ford are committing tens of billions of dollars to EV production. Industrial automation, AI-driven data centers, and smart infrastructure represent multi-decade spending cycles, not cyclical rallies.

The company’s valuation—approximately 14 times forward free cash flow—provides a cushion against execution missteps while offering genuine growth potential over a decade-long investment horizon. This represents an asymmetric risk-reward setup favoring long-term holders.

The Verdict

ON Semiconductor embodies a pattern seen repeatedly in semiconductor history: temporary market dislocations creating entry points in structurally superior businesses. For investors comfortable with near-term volatility, this specialty chipmaker warrants serious consideration as a holdings addition focused on the 2025-2035 window.