ON Semiconductor Stock Slips 2% but Beats Battered Chip Peers

A loss that still beat most chip stocks

ON Semiconductor finished Monday, October 12, at $76.00, down 1.97% from the previous close.22 On a normal day, a drop of nearly 2% would make it one of the weaker large-cap stocks. Monday was not normal for chipmakers. All 30 stocks in the PHLX Semiconductor Index traded lower during the session, and the index fell about 2.3% intraday, adding to a slide that had already taken roughly 7% off its value.4 Micron fell 3.9%, Advanced Micro Devices lost 2.3% and Broadcom gave up 1.9%.8 Memory stocks took the worst of it: SanDisk closed almost 6% lower and SK Hynix's U.S. listing lost about 4%.3

Measured against its own sector, then, onsemi held up fairly well. Measured against the whole market, it did not. The S&P 500 barely moved, slipping 0.06%. The Dow gained 0.38% and the Nasdaq lost 0.44%.22 Both readings are accurate. The useful question is why a power-chip maker with little exposure to memory pricing got pulled into a selloff that began in memory.

What set off the selloff

The pressure built over about a week. On October 8, a Financial Times report said OpenAI's annualized revenue was about $20 billion below earlier estimates. That raised doubts about whether AI infrastructure spending will pay off, and chip stocks fell.7 Other coverage put the figure more precisely: about $50 billion at the end of September, compared with the $68 billion to $70 billion that had been circulating in the market.9 The iShares Semiconductor ETF fell about 5% that week, its worst week in a month.5

The second shock arrived over the weekend. China's ChangXin Memory Technologies (CXMT) said it had made major progress on a new memory architecture that packs more data into less space.1 Memory stocks dropped as a group on Monday.2 Other pressures added to the mood: oil above $106, Treasury yields above 5%, and a Deutsche Bank downgrade of technology stocks from overweight to neutral.4 The sell-off then spread overseas on Tuesday. South Korea's Kospi fell 5.5%, SK Hynix dropped 10.1% and Samsung Electronics lost 7.4%.8 In Europe, STMicroelectronics and Infineon each fell 5% early in the session.1 Those two companies compete more directly with onsemi in automotive and industrial power chips than any memory maker does.

The reporting largely agrees that the CXMT news was a trigger more than a real change in the competitive picture. One strategist told CNBC that CXMT has not shown it can produce at scale and does not compete in high-bandwidth memory. He argued the reaction showed how fragile AI sentiment is right now.1 Another adviser said investors were looking for reasons to take profits in AI stocks that had run up this year.1 That fits onsemi's move on Monday. Nothing in the coverage points to news specific to the company. Its decline looks like sector-wide selling, softened because it has less exposure to memory.

A volatile two weeks for onsemi

Monday's dip was the end of a sharp round trip. On October 1, onsemi and Synaptics revised their merger agreement into an all-cash deal at $123 per share. The deal is now valued at $5.7 billion, down from about $7 billion, and is expected to close in mid-2027.16 Management said the new terms would add to non-GAAP earnings per share right away. The market liked the lower price and the all-cash structure.17 The stock jumped 6.01% to $84.89 on October 2.16 Wells Fargo raised its price target to $100 from $85, and Needham reiterated a $116 target.16

The rally lasted six sessions. The stock closed at $86.31 on October 6, a cumulative gain of 14.1% that added about $4.2 billion in market value.29 Then the chip selloff hit. Company trading data show closes of $82.51 on October 7, $79.41 on October 8 and $77.53 on October 9.11 Add Monday's close of $76.00 and the stock has given back roughly 12% from the October 6 peak, which erases nearly all of the gains from the Synaptics revision.22 On the day of the OpenAI report, an Investing.com screen showed onsemi down 41.2% from its high.27

The drop since October 6 says more about the sector than about onsemi. The company didn't change its outlook, and the deal terms that sparked the rally are the same. The gains came from company news. The losses came from swings in sentiment toward the whole sector.

The earnings setup

onsemi reports third-quarter results on November 2.14 Consensus expects earnings of $0.87 per share, up 38.1% from a year earlier, on revenue of about $1.7 billion, up 9.66%.23 For the full year, analysts expect $3.20 per share and $6.56 billion in revenue.22 Both numbers sit near the middle of management's own guidance of $1.65 billion to $1.75 billion in revenue and $0.81 to $0.93 in EPS.14

The company's record makes this a reasonable bar. It has beaten consensus EPS in each of the last four quarters and topped revenue estimates in three of them.30 In the second quarter, it earned $0.74 per share on $1.6 billion in revenue, slightly above forecasts.30 Gross margin rose to 39.3%, the fourth straight quarterly improvement, and management guided third-quarter margin to 40% to 42%.14 The company also said it expects AI data center revenue to more than double in 2026.14

There is a caution. The consensus EPS estimate has slipped about 0.84% over the past month. That is a small move, but it explains why Zacks keeps onsemi at a Hold rank.22 Coverage also disagrees on the basic growth picture. Trefis says trailing-twelve-month revenue fell 3.1% and that operating margin of 18% trails the technology-sector median.29 Zacks says the latest quarter grew 9.2% from a year earlier.30 Both can be true: a company coming out of an inventory correction can show growth in its latest quarter while trailing totals still reflect earlier weak periods. For November 2, that means investors will look at whether the recovery is speeding up, not just whether the company beats estimates.

Valuation: why analysts disagree

The biggest disagreement in the coverage is about valuation. Zacks puts onsemi at 24.24 times forward earnings, below the industry average of 39.22, with a PEG ratio of 0.64.22 GuruFocus sees it the other way. It estimates fair value at $62.21 and says the trailing P/E of 53.1 is far above the five-year median of 19.3.18 Simply Wall St's discounted-cash-flow model lands in between and calls the stock roughly fairly valued near $77.53. Its reasoning is that paying cash for Synaptics puts more of the financial risk on onsemi's own balance sheet.21

Wall Street analysts are more optimistic than any of these models. Among 30 analysts polled by S&P Global, the average price target is $104.46. Targets range from $75 at Stifel to $150.24 Stifel later raised its target to $80, citing design wins.14 GuruFocus also notes that insiders sold $21.3 million of stock over the past year and made no purchases.18

These views differ mostly because they measure different things. Trailing multiples look high because last year's earnings were low. Forward multiples look cheap if the expected roughly 36% EPS growth arrives. At $76, the market is pricing in some of that recovery but not all of it.

What comes next

The next catalysts are mostly outside onsemi's control. ASML and Taiwan Semiconductor Manufacturing report this week, and investors will read their results for signs of AI demand.9 U.S. inflation data is also due and could move rate expectations, which matter a lot to growth stocks.10

This column's view is that Monday's outperformance is a modest positive but does not show the stock has stabilized. onsemi is less exposed to the memory-competition story than Micron or SK Hynix. But it has a beta of about 2 and has gained more than 50% this year, so it still trades with the AI and chip mood.1426 Its business sells power chips into AI data centers and electric vehicles, a different market from memory. Until November 2, though, the stock is more likely to follow the sector than its own fundamentals. The earnings report is when the company's own results, including margins that have risen for four straight quarters, get a chance to matter more than sector sentiment.