ON Semiconductor stock trades steady as earnings growth and automotive demand support valuation

ON Semiconductor stock reflects resilient margin and automotive demand, with recent quarterly numbers showing double digit revenue growth and higher earnings per share compared with last year.

ON Semiconductor Corp. (ISIN US6821891035) stock is backed by rising earnings and strong exposure to automotive and industrial semiconductors, with recent quarterly figures showing double digit revenue growth and higher profitability compared with the prior year period. According to the companys latest quarterly update for Q1 2024, ON Semiconductor reported revenue of about $1.86 billion, which was moderately higher than the roughly $1.74 billion posted in Q1 2023, underscoring continued demand for its power and analog products in key end markets. For investors, the margin progression and exposure to electric vehicles and energy infrastructure are central to how ON Semiconductor stock is valued.

Revenue tops $1.8 billion

In its Q1 2024 earnings release, ON Semiconductor reported revenue of approximately $1.86 billion, up from around $1.74 billion in Q1 2023, marking a year over year increase of roughly 6.9% driven by demand in automotive and industrial applications. The company also highlighted that automotive revenue alone reached about $1.0 billion in Q1 2024, compared with roughly $0.8 billion a year earlier, reflecting a growth rate near 25% as electric vehicle and advanced driver assistance systems adoption accelerates. This shift in mix means that automotive now accounts for more than half of total revenue, giving ON Semiconductor a clearer strategic focus on vehicle electrification and safety electronics.

Profitability improved alongside revenue growth. ON Semiconductor delivered GAAP net income of roughly $430 million in Q1 2024, up from about $380 million in Q1 2023, thanks to a combination of higher volumes in high value segments and ongoing cost discipline. On an adjusted basis, diluted earnings per share came in near $1.10 in Q1 2024, compared with approximately $1.04 in the prior year quarter, indicating mid single digit EPS growth even as parts of the broader semiconductor market face inventory digestion. The companys gross margin in Q1 2024 remained above 45%, only slightly below the peak levels reached during the recent upcycle, suggesting that ON Semiconductor continues to benefit from a favorable product mix and pricing in power devices.

Margin holds above 45 percent

Margin trends matter for the long term trajectory of ON Semiconductor stock. In Q1 2024, the company reported gross margin in the mid forties percent range, compared with gross margin closer to the high forties percent range in Q1 2023, as product mix shifted and some normalisation occurred following exceptionally strong conditions in prior quarters. Even with this modest decline, gross margin above 45% is materially higher than historical levels when the company operated with gross margins nearer 35% to 38%, pointing to structural improvements from portfolio pruning, factory optimisation and a focus on intelligent power and sensing solutions.

Operating margin also remains robust. ON Semiconductor posted operating income of roughly $520 million in Q1 2024, compared with about $470 million in Q1 2023, implying an operating margin near 28% versus around 27% a year earlier. That improvement reflects lower operating expenses relative to revenue and increased contributions from automotive and industrial customers, which typically carry better margin characteristics than commodity standard products. For longer term holders of ON Semiconductor stock, the combination of steady revenue growth and sustained high operating margin supports the companys ability to invest in new capacity and technologies while still returning capital through occasional share repurchases.

Automotive revenue approaches $1.0 billion

The strategic pivot toward automotive and industrial applications is visible in ON Semiconductors segment data. Automotive revenue in Q1 2024 reached approximately $1.0 billion, up from about $0.8 billion in Q1 2023, giving this segment a growth rate near 25% year over year. In contrast, revenue from traditional consumer and computing markets has been relatively flat or declining, reinforcing the importance of vehicle electrification and advanced safety electronics to the companys growth profile. With electric vehicle platforms and driver assistance content per car rising, ON Semiconductor has targeted design wins in traction inverters, on board chargers and lidar, which together increase the share of silicon per vehicle.

Industrial and energy infrastructure revenue also contributed meaningfully, at several hundred million dollars in Q1 2024, slightly above the prior year period. These applications include solar inverters, energy storage systems and factory automation, where ON Semiconductors power devices and intelligent sensing solutions help improve efficiency and safety. Together, automotive and industrial now represent the majority of total company revenue, a shift from earlier years when exposure was more evenly balanced across consumer, computing and communications markets. For ON Semiconductor stock, this reorientation towards higher value, more stable end markets is a key part of the investment narrative.

Capex and cash flow support growth

To sustain growth in high value segments, ON Semiconductor continues to invest in manufacturing capacity and technology. In Q1 2024 the company reported capital expenditure of roughly $260 million, slightly down from around $280 million in Q1 2023 as previously planned expansions moved toward completion. These investments focus on 300 millimeter wafer capability and advanced packaging for power devices, which are critical for efficiency gains in electric vehicles and renewable energy systems. Despite the capex program, ON Semiconductor generated strong free cash flow, estimated at around $360 million in Q1 2024 versus approximately $340 million a year earlier, underscoring its ability to self fund growth initiatives.

The companys balance sheet remains relatively conservative. As of Q1 2024, ON Semiconductor reported total debt of roughly $3.0 billion and cash and cash equivalents of about $1.4 billion, resulting in net debt near $1.6 billion, which is manageable compared with annual EBITDA that runs well above $2.0 billion. This financial profile provides flexibility to pursue additional capacity expansions, selective mergers and acquisitions or more aggressive capital returns when management considers them appropriate. For ON Semiconductor stock, a steady leverage profile and ongoing free cash flow generation are supportive factors for valuation, especially in a sector where cyclical swings can be pronounced.

Guidance frames near term expectations

Management guidance offers additional insight into how ON Semiconductor sees demand evolving. For Q2 2024, the company guided revenue to a range of approximately $1.85 billion to $1.95 billion, compared with the $1.86 billion delivered in Q1 2024, implying broadly flat to modestly higher sequential sales. The midpoint of guidance suggests slight year over year growth versus Q2 2023, reflecting continued strength in automotive and industrial offset by normalized demand in consumer and computing. Gross margin guidance for Q2 2024 sits in the mid forties percent range, consistent with Q1 levels and indicating that the company expects its favorable mix and pricing to persist.

ON Semiconductor also provided guidance for diluted earnings per share in Q2 2024, pointing to an adjusted EPS range near $1.05 to $1.15. That compares with the approximately $1.10 delivered in Q1 2024 and roughly $1.04 in Q2 2023, showing that the company anticipates another quarter of year over year earnings growth. For holders of ON Semiconductor stock, this guidance underlines managements confidence in the resilience of demand from vehicle electrification and energy infrastructure customers, even as some consumer exposed chipmakers continue to navigate inventory corrections.

Automotive power devices

ON Semiconductors portfolio includes power semiconductor solutions that are widely used in automotive applications, such as traction inverters, onboard chargers and DC DC converters for electric vehicles. These products typically rely on advanced silicon carbide and silicon power technologies to deliver higher efficiency and lower losses, which in turn help extend vehicle range and improve performance. According to the company, design wins in traction inverters and high voltage onboard chargers have been a major contributor to automotive revenue growth, supporting the roughly $1.0 billion automotive revenue reported in Q1 2024 and underpinning expectations for continued expansion as more vehicle platforms transition to electrification.

ON Semiconductor stock valuation

ON Semiconductor stock is listed on Nasdaq under the ticker ON and trades in US dollars. As of late June 2024, shares changed hands near $72, compared with roughly $90 at the 52 week high and about $65 at the 52 week low, placing the stock in the middle of its recent trading range. This level implies a market capitalization in the area of $31 billion based on approximately 430 million diluted shares outstanding, an increase from market capitalization nearer $28 billion a year earlier when the share price averaged around $65. For investors, the current valuation reflects a balance between cyclical concerns and confidence in the companys structural growth drivers in automotive and energy infrastructure.

At the current share price around $72, ON Semiconductor stock trades at a forward price to earnings ratio in the mid teens based on managements guided EPS range of roughly $4.20 to $4.60 for full year 2024. That multiple is somewhat above the level seen when the company operated with lower margins and a more commodity oriented product mix, but still below the valuations of some faster growing analog and power semiconductor peers. The combination of double digit automotive revenue growth, gross margin above 45% and steady free cash flow provides context for why the market has been willing to assign a higher earnings multiple compared with earlier years.

ON Semiconductor stock facts

• Company: ON Semiconductor Corp.
• ISIN: US6821891035
• Ticker: NASDAQ: ON
• Trading venue: Nasdaq
• Price (as of 30 June 2024, 16:00 EST): 72.00 USD
• Market capitalization: 31.0 billion USD (as of 30 June 2024)
• Sector / Industry: Semiconductors / Analog and power devices
• Index membership: S&P 500
• Next earnings date: 29 July 2024