Jim Cramer examined ON Semiconductor Corporation (NASDAQ:ON) as a potential recovery opportunity following its turbulent summer. During the Mad Money episode on October 6, he explained why investors are beginning to look beyond its traditional automotive business:
Their chips have long been focused on regulating electricity use and distributing power efficiently, which is exactly what you need if you’re running a warehouse full of red-hot servers.
Cramer believes growing demand from AI infrastructure and revised terms for the Synaptics acquisition have given investors reasons to reconsider the stock.
ON Semiconductor (ON) ranks #4 on our 10 Best Semiconductor Stocks to Buy Heading into 2026. See which three chipmakers ranked higher and whether they offer greater upside potential.
AI Power Demand Adds to the Recovery
In its August earnings release, management actually projected that AI data center revenue would more than double in 2026. Overall second-quarter revenue increased 9% to approximately $1.60 billion, with adjusted diluted EPS of $0.74 and free cash flow of $425.4 million. The company also reported new AI data center platform wins and an expanded role in NVIDIA’s MGX ecosystem. At its September investor event, ON Semiconductor Corporation outlined a $213 billion addressable market by 2030 across automotive, industrial, AI data center and emerging applications. That figure represents management’s estimate of the market opportunity, rather than a company revenue target. ON’s power-management opportunity also featured in an earlier five-year investment roundup. Its entry examined how a new gallium nitride portfolio could change the cooling and power requirements of demanding applications.
A Different Deal Changes Cramer’s View
The Synaptics acquisition became the main issue in Cramer’s assessment, as he said:
Synaptics makes chips and software for human-machine interfaces, think touchscreens, fingerprint sensors, high-quality displays, voice recognition, noise cancellation. They also made some inroads in AI with a platform that runs real-time machine intelligence on local devices rather than rely on the cloud, and that makes it faster… Best of all, last Thursday night, we learned that On Semi and Synaptics had renegotiated the terms of their deal… As I see it, this is terrific news. The ON Semi-Synaptics merger made a ton of sense. It’s just they were paying too much. Now, they’re getting the same assets at a much more reasonable price.
The amended agreement offers $123 per Synaptics share in cash, with an announced aggregate value of approximately $5.7 billion, versus approximately $7 billion under the original agreement. Management expects immediate accretion to adjusted EPS after closing and opportunities beyond the previously announced $200 million in annual run-rate synergies. Completion remains expected by mid-2027, subject to shareholder and remaining regulatory approvals. Price was not the only objection to the original agreement. Earlier coverage of TD Cowen’s downgrade outlined concerns about what Synaptics would add to ON’s business—and what it might distract from.
Financing and Automotive Exposure Still Matter
The lower announced purchase price comes with a different financial burden. ON Semiconductor Corporation plans to use cash and borrowing, including a commitment for up to $2.45 billion in senior secured term financing. That introduces debt-service obligations alongside the work of combining the businesses. Cramer also acknowledged the limits of the AI story, as he said:
While this is mostly an auto- and industrial-focused chip maker, that hasn’t changed, they do have a rapidly growing AI infrastructure business that I think the market will keep paying up for.
ON ranked third in an earlier hedge-fund-based selection of electric-vehicle stocks, but its entry also highlighted an opportunity beyond cars and servers. Wells Fargo pointed to another potential application for its chips. The valuation leaves room for debate. Valuation readings place it at approximately 21.2x forward earnings, compared with 14.1x for NXP Semiconductors and 19.8x for Microchip Technology. Its retreat from the highs has not produced a discount to these automotive and industrial semiconductor peers. Continued earnings growth remains important to supporting that premium. Improving results have not persuaded every analyst to recommend buying. Baird’s higher price target without a rating upgrade in August reflected a concern that stronger AI demand alone could not resolve.
Fund Ownership Rose Along With a Divided Outlook
Insider Monkey’s data showed 86 hedge funds holding ON Semiconductor Corporation in Q2, up from 58 in Q1. Jericho Capital Asset Management initiated a position in Q2 with 4.88 million shares and was the top hedge fund holder of the company. In addition, Citadel Investment Group increased its holdings in the stock by 1672% to 1.93 million shares. As per Yahoo Finance, the short interest stands at 10.43% of float, which indicates substantial short positioning despite the broader hedge fund participation. Cramer sees enough improvement to back a recovery, as he said:
I like the story, and if you want to buy a laggard semi that can play catch-up, you can do a lot worse than buying some ON Semi.
The revised acquisition gives him a concrete reason to revisit the stock. Investors still need ON Semi to turn its AI opportunities into sustained earnings growth while funding the deal and managing its automotive exposure. A better purchase agreement helps, but completing it successfully will matter more over time.
While we acknowledge the risk and potential of ON as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ON that has 10,000% upside potential, check out our report about this cheapest AI stock.
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