ON Semiconductor Corp (NASDAQ:ON) gave investors plenty of reasons for optimism after delivering stronger-than-expected second-quarter earnings, issuing third-quarter guidance above Wall Street’s expectations, and reaffirming that its AI data center revenue is on track to more than double in 2026. Robert W. Baird analyst Tristan Gerra grew more constructive on the fundamentals, raising his price target while keeping a Neutral rating. The question is what kept him from upgrading his rating.
Margin Tailwinds Meet Share-Loss Worries
Baird analyst Tristan Gerra acknowledged several reasons for optimism on the company, raising his price target to $108 from $100 on August 3. The analyst cited improving momentum across AI data centers, industrial markets, electric vehicles, and China, along with higher factory utilization and a more favorable product mix. He believes those trends could push gross margins above 50% during this cycle.
Management’s guidance also reinforced that view, with third-quarter non-GAAP gross margin expected to be between 40% and 42%, up from 39.3% in the second quarter. In addition, CEO Hassane El-Khoury reaffirmed that AI data center revenue is expected to more than double in 2026. However, analyst Tristan Gerra argued that market share losses in industrial, automotive, and analog remain an important concern, where he believes peers like ST and Texas Instruments are growing faster. He also pointed out that the company’s relatively limited internal manufacturing capacity could become a competitive disadvantage if supply conditions tighten further.
The Growth Gap is Real
Recent industry results provide additional support to analyst Tristan Gerra’s market-share concerns. In the second quarter of fiscal 2026, Texas Instruments Incorporated (NASDAQ:TXN) reported revenue of $5.46 billion, up 23% year over year, while STMicroelectronics grew net revenue 26% to $3.49 billion. By comparison, ON Semiconductor’s (NASDAQ:ON) revenue rose just 9%. That means both competitors expanded at roughly three times the company’s growth rate. Texas Instruments Incorporated (NASDAQ:TXN)’ analog segment alone posted 26% growth, directly competing with one of ON Semiconductor’s core businesses. Those comparisons reinforce Gerra’s argument that rivals are gaining market share in key markets.
Hedge Fund Sentiment
ON Semiconductor’s hedge fund ownership declined from 63 at the end of the fourth quarter of 2025 to 58 at the end of the first quarter of 2026. However, the total hedge fund holdings still increased marginally, going from $1.61 billion to $1.64 billion. This could suggest that while some funds headed for a total exit from the stock, others increased their existing position. A short interest of 11.05% shows that plenty of investors are still betting against the company at the same time. So the overall picture looks mixed.
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