ON Semiconductor Stock: Is ON Underperforming the Technology Sector?

With a market capitalization of $18.6 billion, ON Semiconductor Corporation (ON)  is a leading global semiconductor company specializing in high-performance energy-efficient solutions. Headquartered in Scottsdale, Arizona, the company designs and manufactures a diverse portfolio of power management, sensing, and connectivity solutions that cater to key industries, including automotive, industrial, and communications.

Companies valued at over $10 billion are often categorized as “large-cap stocks,” a distinction ON Semiconductor fits this category through its strong market position. Renowned for its innovations in electric vehicles (EVs), advanced driver-assistance systems (ADAS), and power efficiency technologies, ON Semiconductor plays a critical role in driving the next generation of intelligent and sustainable electronics.

However, it hasn’t been smooth sailing, as the stock has plummeted 45.8% from its 52-week high of $80.08, which it reached on July 29 last year. Over the past three months, the stock has dropped 33.1%, compared to the Technology Select Sector SPDR Fund’s (XLK) 3.9% decline over the same time period. 

ON Semiconductor has been caught in a relentless downtrend, plunging 41.2% over the past year and 38.5% in the last six months, a stark contrast to XLK, which dipped a mere 2.3% in six months and even managed a 2.8% gain over the year.

The stock has also exhibited sustained bearish momentum, trading below its 50-day and 200-day moving averages since early December.

ON Semiconductor, a key player in analog chips and silicon carbide for EVs, saw strong growth post covid but is now facing headwinds. The EV and industrial markets are slowing, leading to a 14% revenue decline in 2024 and a 23% drop in earnings. While the company remains confident in its long-term strategy, its weak price action suggests investors may want to stay cautious amid market uncertainty.

In early March, ON Semiconductor made a $6.9 billion all-cash acquisition offer for Allegro MicroSystems, Inc. (ALGM) at $35.10 per share, a 31% premium over its prior closing price. Allegro’s board rejected the bid, deeming it inadequate. Following the rejection, Allegro’s stock surged 8%, while ON’s shares dropped more than 5% to a three-year low. Analysts expressed skepticism over the deal’s profitability due to interest expenses, while speculation remains on whether ON will return with a higher offer.

In a similar downtrend, ON’s competitor, STMicroelectronics N.V. (STM), has also struggled, with its stock falling 8.3% over the past six months and plunging 42.5% over the past year, reflecting broader weakness in the semiconductor sector.

Despite its recent slump, ON Semiconductor is still catching analysts' attention, with a cautiously optimistic outlook. The stock holds a consensus "Moderate Buy" rating from 31 analysts, and with a mean price target of $61.16, it suggests a compelling 40.9% upside from current levels.