ON Q2 Earnings Beat Estimates, Strong AI Data Center Aids Top-line

ON’s Power Portfolio Drives Segment Growth

Power Solutions Group revenues were $829 million, up 19% year over year and 13% sequentially. The segment benefited from stronger demand for power products, including applications tied to AI data centers.

Analog and Mixed Signal Group revenues declined 2% year over year to $545.7 million but rose 1% sequentially. 

Intelligent Sensing Group revenues increased 7% year over year to $228.8 million, though revenues fell 3% from the prior quarter.

onsemi’s AI Data Center Momentum Accelerates

AI data center remained onsemi’s fastest-growing market. Management now expects related revenues to more than double in 2026, supported by broader customer wins and expanding content across the power tree, which covers power delivery from the grid to the processor.

The company expanded its role in NVIDIA’s MGX ecosystem, secured two power-supply platform wins with Great Wall and added content in Amazon Web Services power-supply and battery-backup systems. Silicon carbide revenues from AI data center applications are projected to grow nearly 60% year over year in 2026.

ON Gains Automotive Content Despite Mixed Demand

Automotive revenues were $781 million, up 7% year over year but down 2% sequentially because of customer seasonality in Europe. ON expects third-quarter automotive revenues to rise in the low-single-digit percentage range sequentially.

China remained a key growth area. Automotive revenues in the country rose 13% during the first half of 2026 despite a 4% decline in total vehicle sales. The company expects China automotive silicon carbide revenues to increase 60-70% this year as market-share gains and new vehicle programs ramp.

onsemi’s Industrial Focus Areas Offset Softness

Industrial revenues reached $423 million, rising 4% year over year and 1% sequentially. Growth in energy infrastructure, medical and factory automation offset declines in traditional industrial markets.

Energy storage systems are expected to generate roughly 40% revenue growth in 2026, driven by stronger North American microgrid demand. onsemi also introduced its next-generation EliteSiC hybrid energy-storage module, which delivers 99.3% efficiency, and began sampling a 500-kilowatt hybrid module platform.

ON Expands Profitability Through Mix and Execution

Non-GAAP gross margin expanded 170 basis points (bps) year over year and 80 bps sequentially to 39.3%. Favorable mix and improved manufacturing performance supported the increase, while pricing actions mainly offset higher raw-material and external-manufacturing costs.

Non-GAAP operating expenses were $296.8 million, slightly below $297.7 million in the year-ago quarter. 

Non-GAAP operating margin rose to 20.8% from 17.3%, reflecting revenue growth, margin expansion and disciplined spending.

onsemi Delivers Strong Cash Flow and Capital Returns

Cash and short-term investments stood at approximately $3.9 billion, while total liquidity was $5.4 billion, including $1.5 billion available under its revolving credit facility.

Cash from operations totaled $459.7 million, up from $184.3 million a year earlier. Free cash flow was $425.4 million compared with $106.1 million in the prior-year quarter, while capital expenditures fell to $34.3 million from $78.2 million.

The company repurchased $332 million of shares during the quarter and returned about 105% of year-to-date free cash flow to shareholders.

ON’s Q3 Outlook Points to Further Leverage

For the third quarter of 2026, ON projects revenues between $1.65 billion and $1.75 billion. Management expects automotive revenues to increase by a low-single-digit percentage sequentially, industrial revenues to remain relatively flat, and the Other category, which includes AI data center, to rise by a high-teens percentage.

Non-GAAP gross margin is expected in the 40-42% range, while non-GAAP operating expenses are forecast between $303 million and $318 million.

Non-GAAP earnings are projected between 81 cents and 93 cents per share.

Zacks Rank & Stocks to Consider

Currently, onsemi has a Zacks Rank #3 (Hold). 

Shopify SHOP, Sandisk SNDK and HubSpot HUBS are some better-ranked stocks in the broader Zacks Computer and Technology sector. While Sandisk sports a Zacks Rank #1 (Strong Buy) at present, Shopify and HubSpot carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shopify, Sandisk and HubSpot are expected to report their quarterly results on Aug. 5. Shares of Sandisk have jumped 442.6%, while Shopify and HubSpot have dropped 27.3% and 40.2%, year to date, respectively.

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