Onsemi chip sales are recovering on AI power demand, but the $5.7 billion all-cash Synaptics deal adds debt and uses cash. We initiate with a hold and an $88 target for October 2027.
Key points
- $1.60 billion in sales in Q2 2026, up 9% from Q2 2025, with AI data center sales set to more than double in 2026 and factory use at 83% in Q2 2026.
- $5.70 billion all-cash deal price in October 2026 for Synaptics at $123 per share in October 2026, using $2.45 billion in new loans in 2026 plus cash.
- $1.51 billion in free cash flow after factory spending in the 12 months to Q2 2026, equal to a 4.9% yield on the price in October 2026.
The call
The rebound looks reasonable from here. At $79.41 in October 2026, the stock needs a full recovery. That price is near 18 times our 2027 earnings estimate.
Revenue bottomed and is turning up ($ billions)SEC XBRL facts to Q2 FY26; Q3 FY26 mid guide and Q4 implied from $6.5B 2026 estimate. As of Oct 8 2026.
We stay cautious because the cash deal limits upside in 2027. We forecast $7.40 billion in 2027 sales. Gross margin (share of sales left after making chips) of 43% in 2027 stays well below the past peak.
Valuation
| Estimate for 2027 | Figure |
|---|
| Revenue in 2027 | $7.40 billion |
| Gross profit at 43% margin in 2027 | $3.18 billion |
| Net income after 15% tax in 2027 | $1.69 billion |
| Earnings per share in 2027 | $4.40 per share |
| Target at 20 times earnings to October 2027 | $88.00 per share |
A 20 times earnings multiple (price divided by profit) in 2027 fits a cyclical chip maker growing again in 2027. The multiple sits below past peaks but above trough levels in 2027. With 11% upside to October 2027, the reward does not clear our buy bar.
Margin recovery still has room to runGAAP gross margin from SEC XBRL; 2027 is mine. As of Oct 8 2026.
Risks
- Car and factory chip demand stalls again in 2027, seen in falling orders and rising distributor stock in quarterly reports in 2027.
- The Synaptics close slips past mid-2027 or uses more cash in 2027, seen in new filings and higher loan draws in 2027.
- AI power pricing weakens as rivals add supply in 2027, seen in lower gross margin and weak guidance on calls in 2027.
What would change my mind
A clean close by mid-2027 with fast debt paydown and stronger car orders in 2027 would turn us more positive.