Onsemi CEO issues bold 2-word message after earnings

Onsemi (ON) stock initially fell 5% after Q1 earnings before recovering slightly, but the reaction may have missed the bigger shift underway.

AI data center power saw strong growth, margins kept rebuilding through mix and factory discipline, and automotive showed signs of healthier demand. More importantly, CEO Hassane El-Khoury delivered a clear two-word message on the call, suggesting this quarter may mark the start of a renewed growth story.

AI power is becoming ON's new growth engine

ON Semiconductor's first quarter reframed the company's growth story. AI data center power shifted from a future opportunity to a visible driver, right as management called Q1 the cycle trough. CEO Hassane El-Khoury described Q1 as the business's "inflection point" on the earnings call, citing the company's AI data center growth and gross margin expansion.

Revenue came in at $1.513 billion, representing only 4.7% year-over-year growth, but the bigger shift came from AI data center revenue, which rose more than 30% sequentially (quarterly) and more than 100% from a year earlier. Management also said orders are improving and lead-time demand is shortening, which points to shipments tracking current consumption more closely.

That matters because demand tied to active deployment carries more weight than revenue lifted by inventory refill. It gives ON a firmer base for growth and reduces reliance on a broad rebound in automotive and industrial demand.

AI power infrastructure rewards performance, efficiency, and supply assurance, which supports stronger positioning and better pricing power.

The company set Q2 revenue guidance for $1.535-$1.635 billion. The bigger test is whether AI can sustain this pace. If it does, ON might start to look less like a cyclical recovery story and more like a power content business with durable demand.

Margin gains are becoming the earnings story

ON's first-quarter report also showed that earnings recovery is gaining traction before revenue fully rebounds.

The company posted a non-GAAP gross margin of 38.5% and a non-GAAP operating margin of 19.1%. Gross margin expanded for a third straight quarter, even with only modest sales growth. Management credited higher utilization, tighter product mix, Fab Right manufacturing savings, and the exit of lower-value revenue. Management said gross margin should expand sequentially through the rest of 2026, while Q2 gross margin guidance stands at 38.0% to 40.0%.

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ON is improving the quality of its revenue base and lowering the cost of producing it. As the company removes lower-return business and shifts toward higher-value power products, future growth should deliver stronger incremental profit.

The company also repurchased $346 million of stock in Q1, adding another layer to the earnings-per-share growth story. Together, margin expansion and buybacks give ON a path to rebuild earnings power ahead of a full demand recovery.

Auto growth signals inventory correction is easing

A big shift this quarter came from automotive, where ON returned to year-over-year growth after seven straight quarters of decline.

Automotive revenue reached $797 million, up nearly 5% from a year earlier. That turnaround matters because this segment made 51% of the company's 2025 revenue, and automotive remains ON's largest end market.

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As long as automotive contracts, growth in areas such as AI power mainly offsets weakness elsewhere. Once automotive holds steady, those newer businesses can start adding to company-wide growth. CEO El-Khoury said the company is shipping "closer to natural demand" rather than into excess customer inventory, a comment that gives the automotive improvement more credibility.

Another quarter of positive automotive growth in Q2 would strengthen the view that the inventory correction is easing.

What could go right for onsemi

• AI data center demand ramps further, reducing reliance on autos and improving mix toward higher-value content.
• Fab Right savings deepen, lifting incremental margins so earnings can outpace revenue recovery.
• Lower-value product exits continue, improving portfolio quality and profit per dollar of sales.
• Automotive demand normalizes, removing the biggest drag and allowing newer growth areas to show through.
• Shorter lead times align shipments with real demand, improving visibility and lowering inventory risk.

What could break onsemi's thesis

• AI infrastructure spending slows, leaving ON tied to a weaker auto and industrial cycle.
• Automotive restocking fades, reopening declines in the company's largest segment.
• Factory utilization slips, reversing gross margin gains and delaying earnings recovery.
• Portfolio pruning outpaces premium product growth, creating a near-term revenue gap.
• Order patterns remain inconsistent, signaling customers are still managing inventory cautiously.

Key takeaways for ON Semiconductor

ON's quarter marked a genuine shift in the story. AI data center power emerged as a meaningful growth engine just as management pointed to a business low point, giving the company a path to grow even if automotive and industrial demand recover unevenly.

The earnings setup also improved. Manufacturing savings, tighter mix, and share repurchases strengthened per-share profit potential, while renewed automotive growth helped stabilize the company's largest business. The next phase comes down to execution. If AI scales, margins hold, and autos stay stable, ON could see structurally stronger earnings.

Related: UPS CEO sends strong 2-word message on margin outlook

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This story was originally published May 6, 2026 at 5:07 AM.