July 19, 2024

Evaluating Semiconductor Stocks: A Deep Dive into ON and Intel’s Financial Health

When evaluating two major players in the semiconductor industry, ON Semiconductor (NASDAQ:ON) and Intel (NASDAQ:INTC), it becomes evident that each company has distinct market focuses and financial trajectories. ON Semiconductor, commonly known as onsemi, delivers innovative solutions like system-on-chip (SoC) and application-specific integrated circuits (ASICs) across various sectors including automotive, industrial, and aerospace. Intel, on the other hand, primarily produces chips for a broader range of consumer electronics and data solutions, from personal computers to data centers.

The performance of ON Semiconductor and Intel’s stocks tells a compelling story of contrasting fortunes and sector challenges. This year has seen ON Semiconductor’s shares decrease by 16%, with a 10% drop over the past twelve months. Intel’s shares have experienced a sharper decline of 39% year-to-date but have managed a slight increase of 2% over the last year.

A financial analysis highlights that ON Semiconductor, with a price-to-earnings (P/E) ratio of 14.7x, is undervalued compared to the semiconductor industry average P/E of 57.3x and Intel’s P/E of 32.5x. This suggests that onsemi may be positioned for a rebound, especially with its strategic investments in electric vehicle (EV) technologies and partnerships with leading automakers like BMW and Volkswagen.

Despite a challenging quarter, where onsemi reported a 5% drop in sales and a 9% fall in earnings year-over-year, there are signs of recovery. The company’s recent performance exceeded market expectations with adjusted earnings of $1.08 per share on revenues of $1.86 billion, against forecasts of $1.04 per share on $1.85 billion. However, the outlook remains cautious with projected sales of $1.68 billion to $1.78 billion for the next quarter, below the consensus estimates.

Intel’s situation presents a different scenario. The chip giant is grappling with significant losses, evidenced by a net loss of $400 million this quarter, though this marks an improvement over last year’s loss of $2.8 billion. Intel is betting big on its future, investing heavily in AI systems and domestic chip production. Yet, the company’s foundry business is not expected to achieve profitability until 2027, posing a substantial risk to investors.

Price Targets and Market Sentiment

The market sentiment around ON Semiconductor appears cautiously optimistic, with a moderate buy consensus and an average price target of $119.63, indicating a potential upside of 70.5%. Intel, maintaining a hold consensus, has a more subdued outlook with a price target of $39.96, reflecting a potential increase of 31.15%.

Conclusion

Investors considering ON Semiconductor and Intel face a landscape marked by potential and peril. ON Semiconductor emerges as a more compelling buy, especially at its current valuation. Its involvement in the burgeoning EV sector and promising deals in silicon-carbide technology could drive long-term growth. Intel, while still a pivotal name in the semiconductor industry, requires a more cautious approach given its ongoing struggles and uncertain turnaround timeline. The comparison ultimately underscores onsemi’s better positioning for growth, making it the preferable choice for those willing to endure market volatility for potential long-term gains.

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