Why This Chip Stock Could Be Your Best 10-Year Investment Play

Valuation That Actually Makes Sense in Semiconductor Space

When you’re hunting for the next big chip stock opportunity, ON Semiconductor (NASDAQ: ON) stands out for a counterintuitive reason: it’s actually affordable. In an industry where most players command premium multiples, this company focused on intelligent power and sensing solutions is trading at just 21x estimated 2025 earnings and 14.5x free cash flow—levels that seem almost reasonable compared to peers.

This valuation disconnect exists because the market has priced in years of sector weakness. Yet here’s the kicker: management projects 25% earnings growth next year and nearly equivalent free cash flow expansion. That’s the kind of asymmetric setup value investors hunt for.

Capital Allocation That Rewards Patient Shareholders

ON Semiconductor isn’t just generating cash—it’s returning it systematically. The company recently authorized a $6 billion share buyback program spanning three years, demonstrating confidence in its long-term trajectory. This matters because as the share count shrinks, existing investors automatically own a larger slice of future earnings.

The track record proves this isn’t empty talk. Over recent years, the company has consistently reduced outstanding shares, creating a powerful compounding effect for buy-and-hold investors.

Three Growth Engines Operating Simultaneously

The Automotive Renaissance

The automotive sector represents ON Semiconductor’s bread and butter, and the shift toward EVs isn’t slowing down—it’s just normalizing. After the explosive investment cycle during COVID lockdowns, the pace has cooled, but long-term commitments remain rock-solid. Major OEMs including Volkswagen, BMW, and Ford have locked in multi-year supply deals for power and sensing solutions. China’s premium EV maker ZEEKR also partners with the company, providing exposure to the world’s largest EV market.

The realistic picture: EV adoption will follow a predictable curve. After this stabilization phase, growth will resume—and ON Semiconductor is positioned as a foundational supplier across powertrains, ADAS, and lighting systems.

Industrial Automation’s Steady Demand

The industrial end market cycles, but it never disappears. ON Semiconductor serves EV charging infrastructure, machine vision, industrial automation, and smart grid applications. These are secular trends that will compound over a decade regardless of near-term macro headwinds.

The AI Data Center Opportunity

This is where the truly compelling story lives. AI and data center revenue currently represents roughly $250 million of the company’s $6 billion in projected 2025 sales. But as Nvidia partner providing power solutions for next-generation data centers launching around 2027, ON Semiconductor sits at the intersection of two exponential growth curves.

The Margin of Safety Argument

Yes, near-term headwinds exist. Yes, automotive investment cycles have surprised markets before. But here’s what matters for decade-long investors:

• Valuation provides genuine downside protection
• Multiple revenue streams reduce single-market dependency
• Capital allocation demonstrates management conviction
• Secular tailwinds in EVs, automation, and AI are structural, not cyclical

The semiconductor industry’s history shows that patient investors in quality businesses bought at reasonable valuations have generated market-crushing returns. ON Semiconductor offers that rare combination: exposure to genuinely exciting long-term growth vectors priced without the sky-high multiples typical in this space.

For investors with a 10-year horizon who can tolerate near-term noise, this chip stock deserves serious consideration.