Here’s Why ON Semiconductor Just Made a $7 Billion Bet on AI
It’s fair to say that ON Semiconductor‘s (ON 4.82%) $7 billion acquisition of artificial intelligence (AI) edge solutions company Synaptics (SYNA 4.97%) didn’t receive a warm welcome from the market. The stock sold off sharply on the announcement and has only recovered slightly since. It’s a bold move that needs some explaining, not least because the sell-off could be a great opportunity for investors. Here’s why.
ON Semiconductor in 2026
The slump in the share price likely occurred because investors woke up to a fundamentally different company after the deal was announced. The company is best known for its power and sensing chips sold to its key automotive (electric vehicles) and industrial verticals. It also has fast-growing revenue from AI data centers, and its partnership with Nvidia to create power chips for a new generation of data centers promises to accelerate its growth.
Today’s Change
(-4.82%) $-4.46
Current Price
$88.08
Key Data Points
Market Cap
Day’s Range
$86.55 – $90.17
52wk Range
$44.56 – $134.92
Volume
268
Avg Vol
13.2M
Gross Margin
36.66%
In fact, I selected the company as my top stock to buy for 2026 on the basis of a cyclical recovery in its EV and industrial end markets, combined with its AI data center revenue and a highly compelling cash-flow-based valuation.
The company didn’t disappoint, nor did its end markets, but with one bound, investors are suddenly faced with a new investment proposition, and it’s causing some consternation.
ON Semiconductor’s big move
The definitive agreement to buy Synaptics suddenly transforms ON Semiconductor from a company with power and sensing technology into one that can also offer connected compute technology. For some real-world examples, consider an industrial robot that needs power and sensors (from ON Semiconductor) to function, but also requires connected computing power (from Synaptics) to operate.
In this sense, the new company will be able to capture more value from physical AI. This is why ON Semiconductor’s management describes the deal as an expansion of its capability from AI infrastructure to physical AI. It also believes that acquiring Synaptics will expand its total addressable market (TAM) “by $30 billion to $243 billion by 2030.”
Image source: Getty Images.
Numbers backing the deal
Management expect the all-stock transaction to add to earnings per share within 18 months of the close. The following estimates were given in the deal presentation.
One key point to note is that buying Synaptics increases profit and gross profit margin. However, Synaptics has lower operating profit margins. That said, management believes it can generate $200 million in synergies (in about 18 months after the deal closes) from the deal, with “probably 85% to 90%” from operating expenses and the rest from cost of goods sold.
In other words, operating profit margin will get a boost from the deal’s synergies.
|
Wall Street Consensus |
ON Semiconductor |
Synaptics |
New Company |
|---|---|---|---|
|
Revenue |
$6.5 billion |
$1.3 billion |
$7.8 billion |
|
Gross profit |
$2.6 billion |
$0.7 billion |
$3.3 billion |
|
Margin |
40% |
54% |
42% |
|
Operating profit |
$1.4 billion |
$0.2 billion |
$1.7 billion* |
|
Margin |
22% |
19% |
22% |
Data source: ON Semiconductor. *Discrepancy due to rounding.
Is ON Semiconductor stock a buy?
There’s an obvious concern that the acquisition will represent a leap from the power and sensing technology the company was focused on expanding to edge AI processing, which might not prove easy to execute. In addition, investing in edge AI is not why many holders invested in the stock in the first place.
Although those concerns are understandable, it’s worth noting that many investors are focusing on AI infrastructure for model training right now. However, the future of AI is likely to be dominated by inference (running models) at the edge, which is why ON Semiconductor is buying Synaptics.
Image source: Getty Images.
The company already has strong exposure to the theme (robots and autonomous machines need power and sensing technology), and with the addition of the connected computing “brain” from Synaptics, the value added for ON Semiconductor from inference spending will only increase.
All told, it’s an early and bold move into the long-term growth market of AI, and that will attract many investors willing to give management the benefit of the doubt over the move. As such, the dip in the share price looks like a decent buying opportunity.
