ON Semiconductor Stock Outlook 2026: SiC Power and Automotive Imaging at the EV Crossroads

ON Semiconductor (NASDAQ: ON) is in the middle of one of the most aggressive portfolio transformations in the semiconductor industry. A company that spent decades supplying commodity MOSFETs and diodes at thin margins is now betting its future on silicon carbide (SiC) power semiconductors and automotive image sensors. The logic is compelling, the execution is challenging, and the outcome depends heavily on how quickly EV adoption curves and ADAS camera penetration materialize. Here is a structured look at ON’s 2026 investment thesis.

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Understanding ON’s Market Position: From Commodity to Strategy

Before analyzing ON’s future, it helps to understand what it used to be and how dramatically the business has changed. A decade ago, ON Semiconductor was a broad-line power semiconductor company selling thousands of commodity product types — discrete MOSFETs, rectifiers, diodes, bipolar transistors, and standard logic — at thin margins to a fragmented industrial and consumer electronics customer base. Revenue was large but earnings quality was modest.

The commodity power semiconductor business has structural disadvantages:

• Products are often interchangeable across suppliers, creating fierce price competition
• Customers can switch suppliers easily with minimal redesign cost
• Capital requirements for manufacturing are high relative to margins
• Market share depends more on pricing and availability than on technical differentiation

CEO Hassane El-Khoury’s 2021 transformation recognized that this business model was a treadmill — investing capital continuously for a commodity return. The pivot to SiC and automotive CIS was a deliberate exit from commodity economics toward markets with genuine technical differentiation and high switching costs.

The Transformation Thesis: Why ON Changed Direction

The pre-transformation ON had a long tail of low-margin products and a fragmented customer base. Revenue was large but earnings power was limited by commodity pricing pressure and high fixed manufacturing costs.

CEO Hassane El-Khoury’s pivot, starting in 2021, was straightforward in theory but difficult in execution:

1. Exit commodity product lines (divest or discontinue)
2. Concentrate R&D on SiC power and automotive CIS
3. Build vertical SiC manufacturing (substrate → epitaxy → device → module)
4. Secure multi-year long-term supply agreements (LTSAs) to reduce revenue volatility

The result, according to recent SEC filings, is a company with higher average selling prices and better revenue visibility through LTSAs — but also with heavy capital expenditure commitments for fab expansion.

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The Technical Case for SiC in EV Drivetrains

To understand why ON’s SiC bet is strategic rather than speculative, it helps to understand why automotive engineers choose SiC over silicon for EV applications.

The inverter problem: An EV’s primary inverter converts the battery’s direct current (DC) into the alternating current (AC) that the motor requires, and vice versa during regenerative braking. This conversion happens through switching — turning transistors on and off at very high frequency to create a smooth approximation of a sine wave.

Every switching event has two costs: conduction loss (heat generated while current flows through the transistor) and switching loss (heat generated during each transition). Silicon MOSFETs and IGBTs have specific limits on switching speed and breakdown voltage that create these losses.

SiC transistors switch faster, can handle higher voltages, and generate less heat during switching. The practical results for an EV:

• Smaller, lighter inverter (higher power density per kilogram)
• Less thermal management hardware required (smaller cooling system)
• Extended battery range from improved efficiency
• Faster DC charging capability (higher-voltage charging is easier with SiC)

These are not marginal improvements — they are system-level differences that matter to every OEM’s vehicle engineering. This is why Tesla, then BYD, then Mercedes, BMW, and virtually every major OEM has committed to SiC inverters.

SiC Power: ON’s Largest Growth Bet

Why SiC Matters for EVs

A conventional silicon MOSFET handles voltage and switching frequency up to its physical limits. SiC outperforms silicon on all three critical axes for EV applications: higher breakdown voltage, faster switching speed, and higher operating temperature. In an EV’s main inverter (the device that converts battery DC to motor AC), switching from silicon to SiC can extend driving range by several percent and reduce thermal management complexity.

Tesla’s adoption of SiC in the Model 3 inverter validated the technology for mass-market EVs. Since then, virtually every OEM has published EV platform roadmaps incorporating SiC.

ON’s SiC Competitive Positioning

Dimension	ON	Infineon	Wolfspeed
SiC market share	Rising	#1	Substrate/epi specialist
Vertical integration	Substrate → module	Full	Substrate/epi only
Financial health	Solid	Solid	Stressed
Automotive CIS	Yes (unique)	No	No
AI infra exposure	Moderate	High	None

Wolfspeed’s financial difficulties present ON with an opportunity: OEM customers who relied on Wolfspeed for SiC supply are accelerating efforts to qualify alternative vendors, including ON. This “displaced demand” scenario is one of the most discussed upside catalysts in the SiC supply chain.

The East Fishkill and Czech Fab Strategy

ON operates a large-scale SiC fab in Roznov, Czech Republic, and acquired the East Fishkill, New York fab to add domestic US production capacity — relevant given domestic content requirements in the US Inflation Reduction Act and EV credit framework.

Vertical integration (making SiC wafers, epitaxy, and finished devices internally) is expensive upfront but provides cost control and supply security that fabless or partially integrated rivals cannot match.

Related: AMAT Applied Materials Stock Outlook 2026 →

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Automotive Image Sensors: The Other Growth Pillar

ON’s image sensor business is often overlooked because Sony dominates the overall CIS market. The key is that ON is not competing in the same product category.

Automotive CIS Requirements vs. Consumer CIS

Requirement	Automotive CIS	Smartphone CIS
Operating temp	-40°C to +125°C	0°C to +70°C
High Dynamic Range	Critical (tunnels, night)	Important but lower bar
Functional safety	ISO 26262 ASIL	Not applicable
Data interface speed	MIPI CSI-2/A-PHY	MIPI CSI-2
Latency	Ultra-low (real-time ADAS)	Moderate

ON’s AR0820 (8-megapixel), AR0233, and next-generation automotive sensors are designed specifically for the automotive environment. As vehicles move from Level 2 to Level 3+ automation, the number of cameras per vehicle increases from 4–6 to 8–12+, multiplying ON’s content per car.

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AI Infrastructure Power: An Underappreciated Revenue Stream

Data center power consumption is growing faster than compute efficiency improvements. Every GPU rack requires a Power Supply Unit (PSU) and Voltage Regulator Modules (VRMs) that convert and condition power precisely. ON’s high-efficiency MOSFETs, GaN FETs, and power management ICs address this market.

This is not ON’s primary growth driver, but it provides a meaningful buffer: when EV-related demand softens, AI infrastructure power demand may partially compensate. Infineon and Texas Instruments are the primary competitors here.

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Three Investment Scenarios

Bull Case — Trigger Conditions

Major LTSA announcements with Tier-1 EV OEMs confirming multi-billion-dollar SiC contracts. East Fishkill fab yield improvement ahead of schedule → gross margin expansion confirmed in quarterly results. Wolfspeed supply disruption → ON absorbs displaced customer relationships. ADAS camera content per vehicle accelerates to 9+ units across major OEM platforms.

Monitoring signal: SiC revenue as a percentage of total breaks above a clearly rising trend in consecutive quarters; LTSA backlog disclosed on earnings calls.

Base Case

Gradual EV recovery through 2026. SiC market share gains continue at a measured pace. ADAS camera adoption follows the Level 2+ mandate timeline in major markets. AI infrastructure power provides incremental upside. Share buybacks continue, supporting EPS growth despite flat top-line growth.

Bear Case — Trigger Conditions

Global EV demand contracts sharply (subsidy removal + recession). SiC pricing war intensifies as Infineon aggressively defends share with price cuts. East Fishkill ramp slower than expected → higher-than-planned capital consumption. China BYD and CATL accelerate domestic SiC development, reducing import reliance.

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How to Read ON’s 10-Q for SiC Cycle Signals

ON’s quarterly filings segment revenue in ways that make the SiC story trackable:

Power Solutions Group (PSG): This is the primary SiC-containing segment. Watch its revenue trajectory — particularly the automotive subsegment within PSG. Accelerating PSG growth with expanding gross margin is the clearest sign that SiC monetization is working.

Intelligent Sensing Group (ISG): This contains the automotive CIS business. Growth here reflects ADAS camera content-per-vehicle expansion. ISG should grow with or without EV volume, because ADAS camera adoption is regulatory-driven (NCAP standards) rather than purely EV-demand-driven.

Gross Margin: SiC margins improve as fab utilization increases and yield matures. Tracking gross margin over time tells you whether the East Fishkill ramp is working as planned.

LTSA Backlog: Not always explicitly disclosed, but management often provides directional commentary about “multibillion-dollar LTSA backlog” or “years of visibility.” Any specific figure is worth tracking; a declining backlog is a warning sign.

EV-Related Conference Call Commentary: Listen for how ON characterizes its SiC customer conversations — whether it’s “expanding qualifications,” “winning new platforms,” or “customers requesting allocation increases.” The language is often more informative than the reported numbers in any single quarter.

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The Wolfspeed Opportunity: Absorbing Displaced SiC Demand

Wolfspeed has faced significant financial challenges, including high capital expenditure for its own fab expansion and weaker-than-expected SiC demand during the 2024–2025 EV softness period. This creates a potential demand absorption opportunity for ON and Infineon.

The mechanism: OEMs building EV platforms need supply security for SiC power modules over the multi-year life of a vehicle model. If Wolfspeed’s financial situation raises questions about supply continuity, procurement teams at major OEMs may be motivated to qualify alternative vendors — including ON — as their primary or backup source.

For ON, winning a large OEM qualification that previously relied heavily on Wolfspeed would be an asymmetric positive catalyst. It would add revenue that was not previously in forecasts and comes with the multi-year contractual commitment structure of automotive supply chains.

What to monitor: Watch for ON press releases about new OEM qualifications, particularly in segments where Wolfspeed had been the primary supplier. Also track any news about Wolfspeed’s production reliability.

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Automotive CIS vs. Consumer CIS: A Competitive Moat Analysis

ON’s automotive image sensor business is often underappreciated because the overall CIS market is dominated by Sony in the consumer segment. Understanding why automotive CIS is a structurally different competitive arena clarifies the moat:

Why Sony does not dominate automotive CIS despite its consumer leadership

Sony’s CIS manufacturing is optimized for high-volume, cost-competitive smartphone production at the expense of specialized reliability. Automotive requirements — particularly the -40°C to +125°C operating temperature range, ISO 26262 ASIL-B or ASIL-C functional safety certification, and specific EMI/EMC standards — require separate product design, separate qualification processes, and separate supply chain management.

This is not a gap that Sony cannot close; it is a gap that Sony has historically chosen not to prioritize given the very different margin structure and volume profile of automotive vs. consumer CIS. ON has invested specifically in automotive CIS for years and has the qualification track record that new entrants would need years to replicate.

The content-per-vehicle tailwind

A Level 2 ADAS-equipped vehicle may have 4–6 cameras. A Level 3+ vehicle may have 9–12+. Each camera requires an image sensor. If the average vehicle migrates from Level 2 to Level 2+ to Level 3 automation over the next 5–7 years — driven by NCAP safety standards requiring AEB, lane-keeping, and blind-spot monitoring — ON’s CIS content per vehicle grows even without any change in vehicle unit production.

This makes the automotive CIS business structurally distinct from the SiC business: SiC depends on EV unit volume; CIS depends on ADAS penetration, which has its own regulatory-driven trajectory.

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Comparing ON to Other EV Infrastructure Stocks

ON is sometimes grouped with “EV stocks” in retail investor framing, but the comparison to pure EV manufacturers or EV battery companies is misleading. ON is better compared to other automotive semiconductor suppliers:

Dimension	ON (Semiconductor)	Infineon	NXPI	STM
SiC power	Core growth bet	Market leader	Limited	Strong
Automotive CIS	Unique strength	None	None	None
MCU	De-emphasized	Strong	Strong	Very strong
AI infra power	Secondary	Strong	Secondary	Some

ON is the only automotive semiconductor company where SiC power AND automotive imaging both appear in the same company’s growth narrative. This combination is genuinely unique — it means ON benefits from two distinct automotive megatrends simultaneously.

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Key Metrics to Monitor

1. SiC revenue as a percentage of total revenue (trend, not absolute)
2. LTSA backlog dollar value (disclosed or implied on calls)
3. East Fishkill fab utilization and yield progress
4. Automotive CIS design-wins in Level 3+ platforms
5. Competitor pricing behavior (Infineon quarterly commentary)
6. New OEM qualification announcements (particularly ex-Wolfspeed customers)
7. PSG gross margin trend (SiC economics improving or not)

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The Long-Term Supply Agreement (LTSA) Strategy: Reducing Revenue Volatility

One of CEO Hassane El-Khoury’s most strategically significant moves was prioritizing LTSAs — multi-year contracts that commit OEMs to purchasing specified quantities of SiC products over 3–5-year periods. This is unusual in the semiconductor industry, where most sales are made on shorter-duration purchase orders.

Why LTSAs matter for ON’s investment thesis:

Revenue visibility: A backlog of LTSA commitments gives management visibility into future revenue that allows more confident capital allocation decisions — specifically, how much to invest in fab expansion.

Supply security for OEMs: In return for pricing visibility, OEMs get supply security — knowing that their SiC modules will be available as their EV production ramps. For OEMs that experienced the 2020–2022 chip shortage, supply security for a critical component like a SiC inverter module is worth paying for.

Reduced volatility for investors: In a sector known for lumpy revenue cycles, a business with years of LTSA coverage has more predictable cash flows than a spot-market-oriented competitor.

The risk is the reverse: if EV demand falls below LTSA purchase commitments, OEMs may seek to renegotiate or absorb penalty payments. Monitoring whether major OEM customers are honoring or renegotiating their LTSA commitments is a key risk signal.

The US Inflation Reduction Act Intersection

ON’s East Fishkill acquisition was partly strategic in the context of the US Inflation Reduction Act (IRA). The IRA’s clean vehicle credits include domestic content requirements — a vehicle’s critical minerals and battery components must be sourced from North America or allied nations to receive the full credit.

While SiC power modules are not themselves battery components, they are part of the EV powertrain. The IRA framework and subsequent Treasury guidance on domestic content have created demand for US-manufactured power semiconductor components among EV OEMs that want to certify their vehicles for full IRA credits.

East Fishkill’s US manufacturing location is therefore not only relevant to production capacity — it may also become a competitive differentiator as OEM procurement teams weigh supply options against IRA content requirements. This is an evolving regulatory dynamic that investors should track as Treasury finalizes IRA domestic content rules.

The Solar and Energy Storage Opportunity: Beyond EVs

ON’s SiC addressable market extends meaningfully beyond EV drivetrains into renewable energy power conversion:

Solar inverters: The power electronics that convert solar panel DC output to AC grid power use SiC transistors at utility scale and increasingly at residential scale. Solar capacity additions globally have been accelerating, creating sustained demand for SiC-based inverter modules.

Energy storage systems (ESS): Battery energy storage systems used for grid stabilization and behind-the-meter storage use bidirectional SiC converters that manage charge and discharge cycles. As renewables penetration increases, grid-scale storage deployment expands — and with it, SiC power module demand.

Industrial motor drives: Variable frequency drives (VFDs) that control industrial motor speeds for energy efficiency improvement are increasingly using SiC to handle higher switching frequencies at lower losses. This is a large addressable market that is often underappreciated in discussions of ON’s SiC opportunity.

These non-EV applications provide important diversification for ON’s SiC revenue — in periods when EV demand softens, solar and storage installations may continue at a healthy pace, partially offsetting the automotive weakness.

EV Demand Slowdown: Risk Framework vs. Panic

The 2024–2025 period saw significant investor anxiety about EV demand growth rates in several major markets. For ON investors, understanding whether the slowdown is a cyclical pause or a structural impairment is crucial.

Arguments for cyclical (temporary) slowdown:

• EV adoption is still in early innings globally — global EV penetration remains below 25% in most major markets
• Charging infrastructure expansion continues, which reduces range anxiety over time
• Battery cost curves continue declining, making EVs increasingly cost-competitive
• Government emissions regulations tighten with each model year, incentivizing OEM electrification regardless of near-term consumer demand softness

Arguments for structural impairment (bear case risks):

• Mainstream consumers (not early adopters) have different use-case requirements and price sensitivity
• Charging infrastructure in rural areas remains inadequate in many markets
• Government subsidy reductions reduce demand at the margin

For ON specifically, the more important question is not “will global EV penetration reach X% by 2030” but “will the average EV use SiC inverters?” The answer to the second question is almost certainly yes, regardless of the pace of EV adoption. The question is timing — and for an investor with a 2–3-year horizon, the SiC content trajectory within EV drivetrains is more predictable than the unit volume of EVs sold.

Pre-Investment Checklist for ON

Before entering a position in ON Semiconductor:

• Is SiC revenue growing as a percentage of total in consecutive quarters?
• Is the LTSA backlog growing or at least stable?
• Is East Fishkill fab utilization improving (management confirms yield progress)?
• Are major EV OEMs maintaining their EV production targets?
• Has Wolfspeed supply disruption created a documented OEM qualification opportunity for ON?
• Is Infineon’s SiC pricing language constructive rather than aggressive?

Investment Takeaway

ON Semiconductor is in the middle of a strategic transformation with a clear destination — SiC power and automotive imaging — but an uncertain arrival time. The EV demand environment in 2026 will determine whether the bull case (snap-back plus share gains) or the base case (measured progress) plays out.

For investors who have conviction in the electrification megatrend and can tolerate near-term EV volatility, ON offers a differentiated angle: SiC power with vertical integration plus automotive imaging that no other pure-play semiconductor company replicates. Confirm LTSA backlog growth and fab execution before sizing up the position.

Capital Allocation at ON: Buybacks as the Primary Return Vehicle

Unlike MCHP, which prioritizes dividend growth, ON Semiconductor has focused capital return on share repurchases rather than dividends. For investors considering ON, understanding why this matters:

Tax efficiency: Share repurchases return value to shareholders without triggering a dividend tax event. For investors in high-tax jurisdictions, buybacks are more tax-efficient than dividends.

Flexibility: Buybacks can be paused during periods when capital is needed for fab expansion or debt management — more flexible than a dividend commitment.

EPS support during fab investment periods: As ON invests heavily in SiC capacity, buybacks help maintain EPS growth that might otherwise be diluted by share-based compensation.

The risk to the buyback program: if SiC capex needs escalate or if a debt covenant requires cash preservation, buybacks may slow. Tracking the authorization amount and pace of repurchases in quarterly filings is a useful capital allocation signal.

ON Semiconductor in a Portfolio Context

For investors building semiconductor exposure across multiple themes, ON occupies a specific position distinct from both the AI semiconductor plays and the traditional MCU cycle stocks:

ON’s unique combination: The only public company that combines SiC power semiconductor growth (EV and clean energy) with automotive CMOS image sensor growth (ADAS penetration). Both themes have multi-year structural tailwinds but different near-term sensitivities.

Correlation to EV subsidy policy: ON’s SiC revenue is more sensitive to EV regulatory policy than most other semiconductor companies. When governments adjust EV subsidies (as happened in Germany, the UK, and China in recent years), EV demand and therefore SiC module demand shifts. Investors in ON should track EV policy news in major markets.

Compared to Infineon: Infineon has more SiC market share today, a more diversified industrial semiconductor portfolio, and broader AI infrastructure exposure. Infineon is the more established automotive power semiconductor play; ON is the higher-beta alternative with the automotive imaging differentiator that Infineon lacks.

How to size the position: Given the SiC fab ramp risk and EV demand volatility, ON warrants a smaller initial position than might otherwise reflect conviction in the SiC thesis. A 2–3% portfolio weight with a plan to add on confirmed LTSA backlog growth and fab execution is a structured approach.

Related: NXPI NXP Semiconductors Stock Outlook 2026 → Related: KLAC KLA Stock Outlook 2026 → Related: LRCX Lam Research Stock Outlook 2026 →

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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Verify all financial data at SEC EDGAR (edgar.sec.gov) and ON Semiconductor’s IR site (onsemi.com/investors) before investing.