ON Semiconductor (NASDAQ: ON), a leading U.S.-based semiconductor manufacturer, posted robust third-quarter results on November 3, 2025, exceeding Wall Street estimates, fueled by strong demand for its chips in artificial intelligence data centers.

For the September quarter, the company reported revenue of $1.55 billion, surpassing analysts' consensus of $1.52 billion. Non-GAAP earnings per share came in at $0.63, beating expectations of $0.59. CEO Hassane El-Khoury highlighted that results reflect "continued signs of stabilization across our core markets" along with "positive growth in AI."

ON Semiconductor's energy-efficient product lineup, particularly power management chips for AI data centers, showed strong adoption, offsetting cautious spending from automotive clients on silicon carbide components amid sluggish electric vehicle demand in Europe and North America. Shares of the Phoenix-based company rose 4.2% to $52.20 in premarket trading, though the stock is down roughly 21% year-to-date.

Margin Recovery and Operational Leverage

The company's net profit margin reached 7.3% in Q3, with analysts projecting a rebound to 25.6% over the next three years if manufacturing utilization improves. ON Semiconductor's Fab Right initiative and selective capacity reductions aim to drive operational leverage, though current underutilization limits near-term gross margin expansion.

Analysts note that gross margins depend on raising capacity utilization above the high-60% range. Growth in automotive and AI segments is expected to accelerate utilization and support sustained cash flow. Meanwhile, portfolio rationalization, which seeks to shed $200–$300 million in legacy revenue, is focused on replacing it with higher-margin offerings such as silicon carbide and advanced sensing technologies. Execution risk remains around timely adoption of these new segments.

Revenue Outlook and Market Position

For the fourth quarter, ON Semiconductor expects revenue between $1.48 billion and $1.58 billion and non-GAAP earnings per share of $0.57 to $0.67, with midpoints roughly in line with analyst estimates of $1.53 billion and $0.62, respectively.

While analysts project the company's revenue to grow at an annualized rate of 4.7%, this remains below the broader U.S. semiconductor market's 10.5% expected growth. High exposure to cyclical demand and slower EV adoption outside China are near-term challenges, but new design wins in AI and silicon carbide products could accelerate revenue growth if realized as anticipated.

Valuation and Investment Considerations

Shares trade at $50.46, about 13% below a DCF fair value of $59.80 and 12.6% below the analyst consensus price target of $57.77, with a price-to-earnings ratio of 44.3x, above the industry average of 36.1x. Analysts emphasize that achieving the expected earnings ramp by 2028 requires sustained portfolio execution and operational improvements to justify the valuation premium.

Conclusion

Overall, ON Semiconductor's Q3 results underscore the company's positioning in AI and energy-efficient applications, while ongoing margin recovery and portfolio shifts will be critical for long-term profitability. Investors remain attentive to execution risks, cyclical exposure, and the pace of growth in high-margin segments.