How I Made $5000 in the Stock Market

Our On Semi Stock Pick Didn’t Pan Out. We’re Ditching the Recommendation

Sep 30, 2025 08:00:00 -0400 by Jacob Sonenshine | #Follow-Up

On Semi stock has slumped since Barron’s recommended it in Nov. 2024. (I-HWA CHENG/AFP via Getty Images)

Key Points

You win some, you lose some. On Semiconductor has been a loser, but instead of buying its dip, investors should just cut their losses.

The now $21 billion chip maker’s stock is down 27% since we published our recommendation in November. Our thesis was that an ailing automobile market would recover, benefiting On Semi, which relies on auto sales for about half its total revenue. After a postpandemic demand surge, auto makers didn’t need to buy many more chips, and demand continued to deteriorate. This has pressured On Semi’s chip prices and crushed its profit margins.

We anticipated that growing demand for electric vehicles would help On Semi’s chip sales. Evidence of that hasn’t surfaced. One of the related overhangs is that Tesla —an On Semi customer —is seeing demand for its cars decline in recent years, cutting off a major pipeline for On Semi’s long-term sales growth.

Bulls may pin hope on On Semi’s auto business stabilizing, but even if that materializes it will make for a slow recovery. In August, the company delivered better-than-expected second quarter sales of $1.47 billion, including better-than-forecast auto sales of $733 million. It even provided third-quarter sales guidance of $1.52 billion, about 15% above estimates, partly from improved auto sales over the second quarter. Still, the stock dropped 16% after reporting earnings.

The problem: The road to a sustained auto recovery remains arduous and far from certain. Although guidance was better than anticipated, CEO Hassane El-Khoury said he was “not there calling a recovery,” adding that customers are operating cautiously when it comes to their chip orders.

Essentially, both the company and the market can’t shake the bad memories of the past few years. They’re worried its auto business may never return to rapid growth, whether due to Tesla or as a result of the effectiveness of On Semi’s chips versus peers such as NXP Semiconductor. The harsh reality is that On Semi has seen auto sales increase quarter over quarter at times in recent years, but those have been false starts. Analysts’ current average forecast of $774 million in third-quarter auto revenue also remains far below the $951 million in last year’s third quarter.

“Management stopped short of calling a recovery, likely a disappointment for investors,” writes Susquehanna Financial analyst Christopher Rolland. With distributors’ inventories rising in the second quarter versus the first quarter, customers may need to once again take a pause on building up their inventories, Rolland says.

That could set up yet another quarter of uncertainty, when On Semi reports again in November. It’s become clear that anything short of confident commentary from management about a robust recovery—not the beginnings of a mild one—will keep a lid on the stock.

That is especially true seeing that it trades at just under 19 times expected earnings per share for the coming 12 months. That may sound tolerable, given that it’s well within its range in the past few years and only two point above NXP’s 17x, but it leaves plenty of room for downside. When On Semi’s stock peaked in late 2023, it traded at just over 20x, a level it’s nearing now. If analysts have to once again reduce earnings estimates, the stock would likely drop.

Even if analysts were to lift projections, the stock still isn’t likely to post the type of longer term gains that other chip makers such as Nvidia or Broadcom have produced. On Semi’s long-term growth prospects simply don’t look robust.

It’s time to take out On bet off.