onsemi utilization hits 83% as auto demand bottoms, AI revenue doubles

onsemi said automotive demand bottomed in the first quarter and raised its 2026 AI data center revenue outlook to more than double year over year, as factory utilization climbed to 83 percent from 68 percent at year-end.

"We are now shipping to natural demand across our markets," Chief Executive Officer Hassane El-Khoury said at the Deutsche Bank Technology Conference, citing book-to-bill above parity and customer visibility extending into 2027 and, in some cases, 2028.

The AI data center business spans the "power tree" from high-voltage power products near the electrical plug to smart power stages adjacent to XPUs, with engagements split between hyperscalers and power-system providers. CFO Thad Trent said each percentage point of utilization improvement contributes roughly 25 to 30 basis points of gross margin, while under-absorption represented a 650-basis-point headwind in the second quarter.

onsemi closed at $74.21, against a DCF-based fair value estimate of $113.52 that implies roughly 35 percent upside. The stock has returned 45.7 percent over the past year but fell 11 percent in the past week as investors reassess the pace of recovery against ongoing manufacturing underutilization.

Margin Recovery Path

Trent outlined a multi-pronged margin recovery: approximately 200 basis points from manufacturing-footprint initiatives, 200 basis points from favorable product mix including Treo-based products, and 200 basis points as bridge inventory from prior fab divestitures is depleted. The company completed its exit from $900 million of annualized low-margin business at the end of the second quarter and is now in maintenance mode for capital spending, with CapEx expected to remain at a mid-single-digit percentage of revenue for several years. Revenue would need to grow about 30 percent before the company considers adding manufacturing capacity.

AI Data Center and 800-Volt Transition

El-Khoury said onsemi is sampling vertical gallium nitride (GaN) products for both AI data center and automotive applications, with manufacturing based in Syracuse, New York. The company also works with Innoscience and GlobalFoundries on lateral GaN. A prospective transition to 800-volt architecture in data centers beginning around late 2027 or early 2028 could expand electronics content, building on onsemi's more than five years of 800-volt experience in automotive. The energy infrastructure business is growing 40 percent year over year, with secular applications representing about 60 percent of the industrial segment.

onsemi expects roughly 6 percent year-over-year automotive growth despite vehicle production being flat to slightly down, driven by electrification including plug-in hybrids using silicon carbide, plus software-defined vehicle architectures. The Treo 65-nanometer mixed-signal platform, which carries gross margins in the 60 to 70 percent range, targets $1 billion in revenue by 2030. Robotics, particularly factory automation and autonomous mobile robots, is an existing growth area within physical AI, with humanoid robotics volume expected in one to two years.

The planned Synaptics combination, expected to close in mid-2027, would add connected-compute capabilities to the power, sensing and control portfolio. With revenue needing to grow about 30 percent before new capacity is required, the operating leverage is substantial — but so is the risk if automotive demand stalls or AI data center growth decelerates. Nvidia and AMD, the dominant AI chip suppliers, remain the primary demand drivers for the power infrastructure onsemi supplies.

This article is for informational purposes only and does not constitute investment advice.