ON Semiconductor Plunges 28% YTD: Should You Avoid the Stock?

Core Viewpoint - ON Semiconductor has underperformed in the market, with a 28.5% decline year-to-date, compared to a 5.5% drop in the Zacks Computer & Technology sector and a 3.9% decline in the Semiconductor - Analog and Mixed industry [1][2]. Group 1: Performance and Market Position - The company has faced declining demand across key end markets and ongoing inventory digestion, contributing to its underperformance relative to peers like NXP Semiconductors, which has seen a 1.7% return in the same period [1][2]. - ON Semiconductor's shares are currently overvalued, indicated by a Value Score of D, and are trading below both the 50-day and 200-day moving averages, suggesting a bearish trend [12][13]. Group 2: Growth Prospects - Despite current challenges, ON Semiconductor's growth prospects are bolstered by strong demand for silicon carbide (SiC) technology, particularly in utility-scale solar and electric vehicles (EVs) in China, as well as intelligent sensing solutions for AI data centers [4][6]. - The company reported a 22% sequential increase in SiC revenues in Q4 2024, and its recent $115 million acquisition of Qorvo's Silicon Carbide Junction Field Effect Transistor business is expected to enhance its position in the SiC market [4][5]. Group 3: Acquisitions and Market Strategy - ON Semiconductor is pursuing strategic acquisitions to strengthen its market position, including a planned acquisition of Allegro MicroSystems for$6.9 billion, which aims to combine automotive and industrial power solutions with sensing expertise [7][8]. - The company is targeting a total addressable market worth $1.3 billion in EV battery disconnects and solid-state circuit breakers, with a projected revenue CAGR of 30$1.35 billion and $1.45 billion, with a consensus of$1.41 billion, indicating a 24.54% decline year-over-year [10]. Group 5: Market Challenges - The company is facing subdued overall demand due to ongoing inventory digestion and slow end-market demand, which is expected to negatively impact top-line growth [9][10]. - Geopolitical uncertainties and tariff impacts are anticipated to further hinder near-term prospects, with Japan sales experiencing a sharp decline and challenges in the Chinese market affecting EV deliveries [16][17].