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ON Q3 deep dive: AI data center and industrial gains offset automotive supply shifts
Analog chips maker onsemi (NASDAQ:ON) reported revenue ahead of Wall Street’s expectations in Q3 2026, with sales up 11.1% year on year to $1.72 billion. Guidance for next quarter’s revenue was better than expected at $1.77 billion at the midpoint, 1.6% above analysts’ estimates. Its non-GAAP profit of $0.90 per share was 2.5% above analysts’ consensus estimates.
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onsemi (ON) Q3 2026 highlights:
- Revenue $1.72 billion vs S&P analysts’ estimates of $1.71 billion (11.1% year-on-year growth, 0.9% beat)
- Adjusted EPS $0.90 vs S&P analysts’ estimates of $0.88 (2.5% beat)
- Adjusted operating income $399.8 million vs analyst estimates of $393.7 million (23.2% margin, 1.5% beat)
- Revenue guidance $1.77 billion at the midpoint for Q4 2026, above analyst estimates of $1.74 billion
- Adjusted EPS guidance $1.01 at the midpoint for Q4 2026, above analyst estimates of $0.96
- Operating margin 22%, up from 17% in the same quarter last year
- Inventory days outstanding 187, down from 191 in the previous quarter
- Market capitalization $27.29 billion
StockStory’s take
onsemi’s third quarter results were shaped by strong momentum in AI data centers and improving industrial demand, while automotive revenue declined due to short-term supply allocation decisions. CEO Hassane El-Khoury highlighted that the company’s strategy to focus on high-growth, high-power density markets is beginning to pay off, noting, “AI data center continues to be our fastest-growing market, scaling more rapidly than we anticipated.” Management attributed the outperformance to targeted investments and disciplined execution, but also acknowledged that ongoing supply constraints limited automotive shipments, with replenishment expected in coming quarters.
Looking ahead, onsemi’s guidance is underpinned by continued demand strength in AI data centers and industrial end markets, as well as the expected normalization of automotive supply. The company is leaning on new product ramps, such as its Embedded Power Platform and recent Ferric acquisition, to accelerate growth. CFO Thad Trent stated, “We expect this momentum to continue into 2027, with continued revenue growth and gross margin expansion as we scale our differentiated products and realize the benefits of our more efficient operating model.” Management cautioned that near-term supply constraints will persist but believes these are temporary and tied to manufacturing cadence.
Key insights from management’s remarks
Management identified the acceleration in AI data center revenue, improved industrial demand, and selective supply allocation as primary influences on Q3 performance and upcoming guidance.
- AI data center surge: AI data center was onsemi’s fastest-growing segment, with revenue up 39% sequentially and 175% year over year, driven by increased demand for high-power density solutions and content gains across the power tree, including wins with major platforms like Google.
- Supply reallocation impacts automotive: Automotive revenue declined sequentially as management prioritized supply to AI data center and industrial customers, though El-Khoury stressed this was a short-term decision and not a shift in strategic focus. The company expects automotive growth to resume as supply constraints ease.
- Industrial demand strengthens: The industrial segment saw notable growth, particularly from energy infrastructure and factory automation, with the so-called "AI halo" effect boosting demand for power and sensing solutions used in robotics and grid-to-data center applications.
- New product traction: New platforms such as the Embedded Power Platform (EPP), vertical GaN, and silicon carbide JFETs began contributing to revenue, with EPP already sampling to select customers. Management sees these products as central to future content gains in automotive, industrial, and data center markets.
- Strategic M&A to expand capabilities: The acquisition of Ferric adds integrated voltage regulator (IVR) technology for next-generation AI processors, which management believes will strengthen onsemi’s position in power delivery and lift its 2030 AI data center revenue target by $500 million.
Drivers of future performance
Management expects future growth to be led by scaling AI data center revenue, new product introductions, and recovery in automotive supply, while highlighting operational efficiency as a margin driver.
- AI data center momentum: Management projects continued rapid scaling of AI data center revenue, underpinned by broadening customer adoption and new product ramps, including solutions using vertical GaN and the recently acquired Ferric IVR technology. They expect this segment to double again in 2027 off an already higher base.
- Automotive normalization and content growth: After a period of supply-driven softness, automotive is expected to recover as inventory replenishment resumes and onsemi gains content in new vehicle architectures, such as 48V and 800V platforms. Content per vehicle is projected to rise, especially in electric and high-end vehicles.
- Margin expansion from utilization and mix: CFO Thad Trent emphasized that higher factory utilization and a shift toward higher-margin new products, along with cost efficiencies from facility divestitures, will support margin expansion. The company targets non-GAAP gross margin improvements as these factors take effect, but noted that some benefits will phase in gradually over the next several quarters.
Catalysts in upcoming quarters
In the coming quarters, our analysts will monitor (1) the pace of AI data center revenue growth and the impact of Ferric’s IVR integration, (2) a rebound in automotive shipments as supply constraints ease and content per vehicle increases, and (3) the contribution from new product ramps like EPP and vertical GaN. Additional indicators will include continued expansion in industrial demand and progress on operating margin improvements through manufacturing efficiency.
onsemi currently trades at $70.35, in line with $70.11 just before the earnings. Is there an opportunity in the stock? See for yourself in our full research report (it’s free).
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