Onsemi Stock Confirms Bottom, But What’s the Upside?
Onsemi's (NASDAQ: ON) stock price action hit its bottom in late April and offered an attractive entry in May. The Q1 results weren’t spectacular, with revenue contracting by 22%, but they were better than expected. Guidance was also raised above the analysts' consensus, and both align with an outlook for growth to resume next year. Greenshoots revealed by the company in its report and conference call indicate that the business is improving.
This semiconductor stock may take some time to regain traction and trend higher. Still, new lows are unexpected, and the upside potential is substantial, providing an attractive risk-to-reward scenario.
Onsemi trades at a low 17x earnings, even lower when compared to the forward outlook, and has many tailwinds to support long-term growth. These include rapidly advancing automotive technology, industrial application of digital technology, AI, and the IoT.
Each has a robust outlook for growth and is expected to accelerate in the coming quarters despite macroeconomic headwinds. Macroeconomic headwinds will hamper the rebound in 2025 but dissipate over time as global trade relations normalize.
Analysts and Institutional Activity Mark Onsemi’s Stock Price Bottom
Analyst sentiment trends helped Onsemi’s stock price fall to multi-year lows in 2025 and provide a catalyst for the market in Q2. The trends include a steadily declining consensus price target as reported by MarketBeat, offset by a firm Hold rating with bullish bias and an outlook for 45% of upside.
The catalyst is in what the analysts do next. The Q1 results and Q2 guidance suggest an end to the reductions and a high likelihood for price target increases, a catalyst for rising share price action.
As it is, Onsemi’s stock price is bouncing from the analysts’ low-end range, another factor suggesting this stock has reached its bottom. Assuming the analysts begin to reaffirm targets, the rebound in Onsemi stock will begin sooner rather than later and could increase this stock by double-digits by the year’s end.
Likewise, data from MarketBeat shows that institutions sold in Q1 2025 but reverted to buying in early Q2, a sign that this stock’s decline had reached its end.
Greenshoots Appears for Onsemi Despite Struggles in Q1
Onsemi struggled in Q1, with all end markets contracting. The weakness was worst in the PSG segment, which contracted by 26%, followed by a 20% decline in ISG and a 19% contraction in AMG.
The worst news is that margins were also significantly impacted, but not all the news is bad. Revenue and earnings are ahead of expectations, and the company’s positioning efforts have significantly improved cash flow.
Cash from operations topped $602 million, or more than 40% of revenue, while free cash flow (FCF) grew by more than 70% to $455 million. FCF is critical because Onsemi is a capital return machine that uses more than 60% of it to buy back shares. Share repurchases in Q1 were accelerated from trend, reducing the count by 1.9% sequentially and 3.5% compared to last year.
The guidance is also good and sufficient to sustain the balance sheet health and capital return while aligning with an outlook for resumed growth in 2026. CEO Hassane El-Khoury and the company say they’ve scored critical wins across all end markets and are guiding for Q2 revenue near $1.45 billion at the midpoint. That’s flat compared to Q1, with contraction slowing from 22% to 16%.
Onsemi Builds Value for Investors
Onsemi’s balance sheet reflects the impact of divestitures, repositioning, and share buybacks, with equity down in Q1. Equity fell by roughly 1.6%, but the share count decline, cash flow improvement, and outlook for capital return sustainability offset the loss.
The bottom line is that this business's leverage remains low and will continue to do so in 2025 and beyond. As its business rebounds and the share count steadily falls, this will build leverage for investors.
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