ON Semiconductor Poised for Significant Growth with NVIDIA's 800V Data Center Transition
ON Semiconductor (ON) is poised for a significant surge as the AI data center landscape evolves, particularly with NVIDIA's shift to an 800-volt direct current (800VDC) architecture. This transition is expected to amplify the silicon content supplied by ON per NVIDIA rack by approximately 11 times, marking a substantial increase from $9,500 to $105,000. While the company previously focused on electric vehicles (EVs) and experienced a slowdown, the emerging AI market presents a powerful new growth driver that analysts believe is currently undervalued by the market. This strategic pivot highlights ON's adaptability and technological prowess in a rapidly changing industry.
The technical necessity of 800VDC for next-generation AI data centers, like NVIDIA's Rubin Ultra NVL576 system, underscores ON's critical role. These systems demand immense power, with traditional 54-volt distribution proving inefficient and impractical due to high current requirements. By moving to 800VDC, power distribution becomes significantly more efficient, reducing current by approximately 15 times and copper needs by 45%. ON's specialized gallium nitride (GaN) process, operating in the 700-1200 volt range, is a key differentiator, as competitors currently lack the ability to replicate this technology at scale. This technological moat, coupled with confirmed collaborations with NVIDIA for 800VDC power solutions and early infrastructure adoption by major players like CoreWeave and Oracle Cloud, signals strong future demand.
Financially, ON Semiconductor demonstrates resilience and significant upside potential. Despite a 15% revenue decline in CY25 from its CY24 figures and a 27% drop from its CY23 peak, the company reported stabilization in Q4 2025, exceeding EPS consensus and achieving a record free cash flow margin. Strategic exits from non-core, low-margin revenues further enhance revenue quality, while underutilization charges currently impacting gross margins are expected to unwind as factory loading recovers. Projections indicate AI data center revenue could reach over $250 million in CY25, with guidance for high-teen sequential growth in Q1 2026, putting the company on a path to potentially hit $1 billion by CY28. Given its current valuation at roughly half that of its peers in AI data center exposure, and an expected 40% annual EPS growth over the next three years, ON Semiconductor appears significantly mispriced, presenting a compelling investment opportunity as its AI narrative gains traction.
The journey of innovation often presents unexpected pathways to growth, and ON Semiconductor's pivot from a primary focus on electric vehicles to becoming a pivotal player in AI data center infrastructure exemplifies this. The foresight to develop and scale a unique gallium nitride process, anticipating the future power needs of advanced AI systems, positions the company at the forefront of a technological evolution. This shift not only underscores the importance of continuous adaptation and strategic vision in business but also highlights how specialized component manufacturers can become indispensable in driving the next wave of technological advancement. By focusing on fundamental engineering challenges and delivering cutting-edge solutions, companies like ON Semiconductor contribute significantly to progress, powering the complex, energy-intensive innovations that shape our digital future and fostering a spirit of ingenuity and forward-thinking in the global economy.
