BofA Global Research downgraded ON Semiconductor (NASDAQ:ON) to Neutral from Buy given a slower-than-expected recovery in sales and gross margins, mostly from industrial and Western auto markets.
The brokerage said ON’s second-quarter results reflected a tepid rebound, with continued softness in U.S. and European automotive demand and missed expectations in industrial sales.
The company’s growing dependence on China EVs was flagged as difficult to track and potentially unsustainable.
BofA now expects 2026 sales to grow just 5% year over year, well below consensus expectations of 10%, hurt by a $300 million drag from ongoing non-core exits.
Despite those exits, margins have yet to show meaningful improvement, while silicon carbide (SiC) profitability remains diluted by low utilization.
Gross margin estimates were cut by 60–150 basis points for 2026–2027, as utilization remains constrained and distribution inventory remains elevated.
BofA lowered its price objective to $56 from $70, based on a reduced 20x multiple on 2026 earnings, down from 25x previously.
The firm said ON remains range-bound in the near term, with data center growth unlikely to become a clear catalyst until the second half of 2026.
The note highlighted positives including strong free cash flow and buybacks, a doubling of data center revenue, and solid market share in China EVs, but said these were not enough to offset the lack of near-term momentum.
