ON Semiconductor Earns Higher Price Target from Baird as AI Data Center Revenue Set to Double

ON Semiconductor Corp (NASDAQ: ON) gave investors multiple reasons for optimism after delivering stronger-than-expected second-quarter earnings, issuing third-quarter guidance above Wall Street expectations, and reaffirming that its AI data center revenue is on track to more than double in 2026. Robert W. Baird analyst Tristan Gerra grew more constructive on the fundamentals, raising his price target while maintaining a Neutral rating. The bullish case centers on ON Semiconductor's portfolio of power management and sensor chips, which are critical components in AI server infrastructure where rising compute density is driving demand for more efficient power delivery and thermal management silicon.

Margin Tailwinds Meet Share-Loss Concerns

Gerra raised his price target on ON Semiconductor to $108 from $100 on August 3, citing improving momentum across AI data centers, industrial markets, electric vehicles, and China. He also pointed to higher factory utilization and a more favorable product mix, trends he believes could push gross margins above 50% during the current cycle—a level that would mark a meaningful expansion from the sub-42% range the company has operated in recently.

Management's guidance reinforced that outlook. Third-quarter non-GAAP gross margin is expected to land between 40% and 42%, up from 39.3% in the second quarter. CEO Hassane El-Khoury reaffirmed that AI data center revenue is projected to more than double in 2026.

Despite these positives, Gerra maintained his Neutral rating. He argued that market share losses in industrial, automotive, and analog segments remain a significant concern, noting that competitors such as STMicroelectronics and Texas Instruments are growing at a faster pace. He also cautioned that ON Semiconductor's relatively limited internal manufacturing capacity could become a competitive disadvantage if supply conditions tighten further—a structural consideration that matters more during cyclical upswings when capacity-constrained players may not fully capture surging demand.

The Growth Gap Is Real

Recent industry results lend additional weight to Gerra's market-share concerns. In the second quarter of fiscal 2026, Texas Instruments Incorporated (NASDAQ: TXN) reported revenue of $5.46 billion, representing 23% year-over-year growth. STMicroelectronics, meanwhile, grew net revenue 26% to $3.49 billion. By comparison, ON Semiconductor's revenue rose just 9%, meaning both competitors expanded at roughly three times the company's growth rate.

Texas Instruments' analog segment alone posted 26% growth, directly competing with one of ON Semiconductor's core businesses. These comparisons reinforce the argument that rivals are capturing market share in key segments even as the broader analog and power semiconductor market benefits from a cyclical recovery.

Hedge Fund Sentiment

ON Semiconductor's hedge fund ownership declined from 63 funds at the end of the fourth quarter of 2025 to 58 at the end of the first quarter of 2026. However, total hedge fund holdings increased marginally over the same period, rising from $1.61 billion to $1.64 billion. This divergence suggests that while some funds exited the stock entirely, others increased their existing positions.

Short interest stood at 11.05%, indicating that a meaningful portion of investors remain bearish on the company's near-term prospects. The overall picture remains mixed, with improving operational tailwinds offset by competitive pressures and diverging investor sentiment. Whether the upcoming third-quarter results validate the margin recovery and AI data center acceleration will be a key data point for assessing whether ON Semiconductor can narrow the growth gap with its larger peers.

Source: Yahoo Finance