ON Semiconductor Corp. (NASDAQ:ON) has experienced an 8% decline in market value year-to-date, contrasting sharply with the PHLX Semiconductor Index’s 14% gain during the same period.

This underperformance for ON Semiconductor stems from a failure to achieve topline growth over the past two quarters, reflecting weakened demand across its core business segments, including power solutions, analog, and sensing technologies.

The softness in these areas is largely attributable to challenging conditions within the automotive and industrial markets. Despite these headwinds, the stock has recently seen a significant surge, gaining over 47% in the last three months and outperforming the index’s 34% rise, and it currently trades above its 50-day moving average of $47.56.

Also Read: ON Semiconductor Powers Through Expectations, But Analysts Dial Down Targets On Margin Squeeze

Recent Financial Performance and Strategic Shifts

Several factors appear to be driving this recent upward trend. On May 5, ON Semiconductor announced its fiscal first-quarter 2025 revenue declined 22.4% year-on-year to $1.45 billion, yet this still surpassed the analyst consensus estimate of $1.40 billion.

While revenue from power solutions, analog, and sensing all decreased, the company’s adjusted gross margin saw a 590 basis point decline to 40.0%, indicating pricing pressures within the semiconductor industry. Looking ahead, ON Semiconductor anticipates second-quarter adjusted revenue to be between $1.40 billion and $1.45 billion, aligning with the analyst consensus of $1.42 billion.

Further contributing to investor sentiment, on February 26, the company unveiled a comprehensive restructuring plan aimed at cost reduction and margin improvement across all business units, including manufacturing. This initiative involves laying off approximately 2,400 employees, with an expected annual savings of $105 million to $115 million by 2025.

CEO Hassane El-Khoury emphasized a strategic shift towards core operations, phasing out side projects to capitalize on the increasing demand driven by artificial intelligence. El-Khoury specifically highlighted the critical role of the company’s power chips in supporting large-scale GPU deployments, underscoring strong AI tailwinds.

This strategic focus on AI and cost optimization seems to resonate with investors. Previously, on February 10, the company had reported a 15% revenue decline for fiscal fourth-quarter 2024, missing analyst estimates, and El-Khoury had expressed uncertainty regarding 2025, making the recent strategic announcements all the more impactful.

Macroeconomic Tailwinds and Headwinds

Macroeconomic indicators also play a role in ON Semiconductor’s outlook. The proposed “Big Beautiful Bill” in the U.S. could significantly benefit the company by increasing the U.S. chip investment tax credit to 30% through 2026, thereby encouraging domestic manufacturing expansion.

While the bill also ends the $7,500 EV tax credit after September 30, potentially leading automakers to raise EV prices and boost margins, this could, in turn, create more room for investment in advanced chips, thus stimulating demand for ON Semiconductor’s products.

However, the escalating U.S.-China geopolitical tensions, particularly the tariff war, pose a significant risk, with potential retaliatory measures from China. Automakers are actively seeking alternative rare-earth material sources to circumvent China’s export restrictions, developing low-to-zero rare-earth motors, and strengthening local supply chains, a sentiment echoed by Tesla’s (NASDAQ:TSLA) Elon Musk.

Analyst Outlook

Analyst perspectives on ON Semiconductor are varied. A consensus price target from twenty-eight analysts stands at $62.43. Recent ratings from KeyBanc, Citigroup, and UBS suggest an average target of $60, implying a potential upside of 3.70% for the stock.

In April, Bank of America analysts Vivek Arya and Duksan Jang anticipated a first-quarter earnings beat due to conservative outlooks and tariff-related demand shifts favoring U.S. chipmakers. They projected a mixed second quarter, with expanded guidance ranges reflecting lingering uncertainties from trade tensions and AI regulation.

These analysts also cautioned that ON Semiconductor could face a 7%-9% sales hit under modest to dire tariff scenarios, potentially leading to EPS declines ranging from 12% to 30% and margin pressure of 150-500 basis points. They specifically noted that companies tied to consumer and auto segments, like ON Semiconductor, are more vulnerable than AI- and cloud-exposed peers such as Nvidia (NASDAQ:NVDA) or Lam Research (NASDAQ:LRCX).

Earlier in January, Needham’s N. Quinn Bolton highlighted weak demand in the company’s key automotive and industrial markets and ongoing inventory digestion, expecting management to reduce fab utilization below 65%, which would pressure adjusted gross margins in the first half of 2025. Despite this near-term weakness, Bolton identified ON Semiconductor as a strong candidate for a semiconductor cycle rebound.

Price Action: ON stock is trading higher by 0.09% to $57.82 premarket at last check Thursday.

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