Why I’ve Begun Accumulating ON Semiconductor

ON Semiconductor keeps making the case for accumulation, and the Q2 2026 report only strengthened it. Call it a study in conviction. The company I first bought as an auto-and-industrial cyclical is quietly becoming something else, and the market is still pricing it like the old story.

Here is what pulls me back. ON Semiconductor (NASDAQ:ON | ON Price Prediction) sells the intelligent power and silicon carbide content that goes inside AI server racks, EV powertrains, and grid-scale energy storage. CEO Hassane El-Khoury put it plainly on the Q2 call: “As the only broad-based U.S. power semiconductor supplier with technologies spanning the full AI power tree, we are uniquely positioned to support this transition from the grid all the way to the processor.” The thesis, in short: exposure to the whole power tree of AI, from the grid connection all the way to the processor.

The Receipts Behind the Conviction

AI data center revenue more than doubled year over year in Q2, and management expects the segment to more than double in full-year 2026. Content per rack is running at $15,000 today and the company is targeting $115,000 per rack by 2030. The addressable market they now see: $12 billion expanding to roughly $50 billion by 2030. That is the growth engine.

The cash story is what finances my accumulation. Free cash flow reached $425.4 million in Q2 2026, growth of 300.94% year over year. Non-GAAP gross margin came in at 39.3%, and Q3 guidance calls for 40.0% to 42.0%. Utilization moved from 77% to 83%, and CFO Thad Trent said the math is “25 to 30 basis points of gross margin improvement for every point of utilization.” That is operating leverage I can measure.

Capital return closes the loop. With no dividend in place, ON channels capital return entirely through buybacks, repurchasing roughly 105% of free cash flow to shareholders year to date, with $332 million repurchased in Q2 alone under a new $6 billion authorization over three years. FY2025 buybacks totaled $1.377 billion, roughly 100% of that year’s free cash flow. A shrinking share count against a rising earnings base is how shareholders benefit.

Why ON Stands Out Among Power Semi Peers

Texas Instruments (NASDAQ:TXN) is the default quality name in analog power, and Wolfspeed (NYSE:WOLF) is the pure-play silicon carbide bet. My money goes to ON because it holds the verified NVIDIA MGX design wins, an AWS power-supply and battery-backup design win, the Rivian R2 platform win, and silicon carbide revenue in China auto growing between 60% and 70% year over year. That combination of AI, EV, and industrial power inside one balance sheet is what I cannot replicate with the alternatives.

The Risk I Am Willing to Underwrite

The trailing P/E sits near 262 because earnings are still climbing out of the FY2025 trough. If AI data center demand slips or the Synaptics integration goes sideways, that multiple will bite. The Analog and Mixed-Signal Group also declined 2% year over year in Q2, a reminder that the recovery is uneven. My thesis holds because book-to-bill has been running well above 1 for several quarters and lead times stretched from 27 weeks to 32 weeks. Some customers are already ordering into 2028 to lock up supply. That tells me capacity is the current constraint.

The accumulation case rests on a simple point: the power tree of AI has to be built by someone, and few peers offer comparable exposure to that build-out at this valuation reset.

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