Earnings Preview | ON Semiconductor Corporation (ON.US) Q3 Results Due Soon: AI Data Center Business, Gross Margin, and Q4 Guidance Are the Biggest Highlights

ON Semiconductor Corporation (ON.US) will report its third-quarter 2026 results after the U.S. market close on Monday, November 2. The market currently expects ON Semiconductor Corporation's Q3 revenue to grow 10% year-over-year to US$1.7 billion, with adjusted earnings per share up more than 39% year-over-year to US$0.88. Beyond the third-quarter results, the market is equally focused on the fourth-quarter guidance ON Semiconductor Corporation will provide. Based on current analyst expectations, ON Semiconductor Corporation's Q4 revenue is approximately US$1.74 billion, with adjusted earnings per share of approximately US$0.96. Against the backdrop of a market that is beginning to re-examine the return on artificial intelligence (AI) capital expenditure and worrying about whether the massive investments of tech giants can be converted into actual revenue and cash flow, ON Semiconductor Corporation's Q3 results will serve as an important window for observing whether AI infrastructure demand can continue to transmit upstream to semiconductor suppliers. The key to this earnings report is not just whether revenue and earnings per share can beat expectations, but whether the AI data center power business can prove that demand is real, that growth is sustainable, and that it is being converted into gross margin and cash flow improvement. For investors, the Q3 results provide demand validation, while the Q4 guidance determines whether this growth can continue. 1. Can the AI data center business continue to grow at a high rate? Data shows that ON Semiconductor Corporation's second-quarter revenue grew approximately 9% year-over-year to US$1.6 billion, slightly above the analyst consensus of US$1.59 billion; adjusted earnings per share grew approximately 40% year-over-year to US$0.74, above the analyst consensus of US$0.71. Segment data further proves that growth is clearly concentrating in the AI data center power semiconductor business. Power Solutions Group (PSG) revenue reached US$829.0 million, up 18.7% year-over-year and 13% quarter-over-quarter, with its share of total revenue rising from 47.5% in the year-ago period to 51.7%, becoming the source of more than half of the company's revenue; Analog & Mixed-Signal Group (AMG) revenue was approximately US$545.7 million, down 1.8% year-over-year; Intelligent Sensing Group (ISG) revenue was US$228.8 million, up 6.6% year-over-year. ON Semiconductor Corporation's strong Q2 results show that AI chip demand is systematically spilling over from GPUs, ASICs and HBM themselves to power semiconductors, analog control and monitoring signal chains. This is not analog chip companies simply "riding the AI concept," but the inevitable physical demand brought about by increasing compute density. In the analog/power chip space and the power semiconductor/discrete device space, the underlying core logic behind the strong demand expansion accompanying the unprecedented AI wave is that AI racks are jumping from the tens of kilowatts of traditional servers to more than 100 kilowatts, and evolving toward 600 kilowatts or even 1 megawattthat is, the power consumption of a single next-generation GPU/TPU/ASIC may reach 24 kilowatts. Traditional 48V/54V architectures would generate thousands of amperes of current, and copper losses, heat and busbar volume would all rise sharply. This is why global AI data centers are being forced to actively shift to the 400V or 800V DC architecture jointly promoted by ON Semiconductor and NVIDIA Corporation. Before power enters the GPU from the grid, it must go through AC/DC rectification, PSU, BBU, high-voltage power distribution, 800V-to-50V intermediate bus conversion, and then multiphase VRMs to step the voltage down to the sub-1V required by the GPU core; each stage requires Si, SiC or GaN power switches, gate drivers, digital controllers, power management ICs and eFuses. What ON Semiconductor Corporation, Texas Instruments Incorporated and Infineon sell are precisely these "every-watt-must-pass" devices, so the higher the rack power and the more complex the conversion stages, the greater the semiconductor value per cabinet typically is. ON Semiconductor Corporation can provide EliteSiC MOSFET/JFET, high- and low-voltage silicon MOSFETs, GaN devices, hot-swap smart fuses, multiphase controllers, power stages and PoL regulators in this "grid-to-GPU" power tree, so that a single AI rack not only needs more chips but also power devices with higher unit prices, higher voltage withstand and higher efficiency. NVIDIA Corporation's NVIDIA MGX platform is arguably the core strategic entry point for ON Semiconductor Corporation's AI data center business. ON Semiconductor Corporation already supplies power FETs, multiphase power, SiC JFET and GaN solutions for existing MGX systems, and directly serves NVIDIA Corporation as well as PSU, BBU and future 800V power distribution board suppliers in the MGX ecosystem; MGX's standardized server and rack designs also make it easier for a certified power device to be replicated and adopted by multiple OEMs and ODMs. ON Semiconductor Corporation has defined the AI data center business as its fastest-growing segment and expects related revenue to more than double in 2026. If management confirms that the AI data center business continues to grow strongly and that orders, customer adoption and product shipments improve in tandem, investors may view this as AI capital expenditure transmitting to the broader semiconductor supply chain, rather than being concentrated only in GPUs, memory and advanced-node chips. It is worth noting that order visibility for the AI business is particularly important. If management can confirm that customer demand is not only concentrated in the current few quarters but has also formed sustained platform design wins and subsequent volume production opportunities, the market's valuation logic for ON Semiconductor Corporation's AI business could shift from a short-term cyclical rebound to medium- to long-term growth. In addition, the recovery progress of traditional businesses may also become a focus for investors. Can the automotive business continue to improve? When will the industrial business resume growth? The answers to these questions may test the quality of ON Semiconductor Corporation's earnings growth. 2. Gross margin and cash flow are also key ON Semiconductor Corporation's Q2 GAAP gross margin rose from 37.6% to 38.4%, and non-GAAP gross margin rose to 39.3%. The company previously said that Q2 capacity utilization had risen from 77% in the first quarter to 83%, and management expects each one-percentage-point increase in capacity utilization to contribute approximately 25 to 30 basis points to gross margin. ON Semiconductor Corporation's operating cash flow for the period ended July 3 grew 149.4% year-over-year to US$459.7 million, while free cash flow surged from US$106.1 million to US$425.4 million, roughly four times the year-ago level, with the free cash flow margin rising from approximately 7% to 27%. In other words, although Q2 revenue grew only about 9%, profit, cash flow and shareholder returns expanded several-fold, showing that ON Semiconductor Corporation's Fab Right capacity optimization, cost discipline and product mix upgrade have begun to generate real operating leverage. If Q3 gross margin reaches or even exceeds the upper end of the 42% guidance and free cash flow continues to improve, it would indicate that AI data center business growth, capacity utilization improvement and product mix optimization may be jointly driving profitability higher. Conversely, if revenue beats expectations but gross margin remains stagnant or is even dragged down by rising raw material, substrate and external manufacturing costs, the market may question whether AI business growth truly has high earnings quality. In addition, ON Semiconductor Corporation is advancing its acquisition of Synaptics. Upon completion of the transaction, the company will expand its presence in connected computing, edge AI and related technologies, but investors will also focus on the transaction's financing arrangements, integration costs, synergies and gross margin impact. Synaptics itself has a higher gross margin, which in theory could improve ON Semiconductor Corporation's product mix, but whether the acquisition can truly enhance long-term profitability still depends on business integration and revenue synergies after the deal closes, and cannot be judged solely on the target company's historical gross margin. 3. Are AI orders crowding out supply capacity for traditional businesses? ON Semiconductor Corporation previously prioritized AI customer orders, and delivery arrangements for automotive and industrial customers were affected to some extent. At the same time, the company's product delivery lead times were reportedly extended from about 27 weeks to about 32 weeks. This reflects rising demand for AI power semiconductors, but it also raises supply allocation issues. Investors need to watch whether management expects lead times to continue extending, and whether the company can maintain normal deliveries for automotive and industrial businesses while meeting AI customer demand. If AI business growth comes at the expense of other businesses, the quality of its overall growth would need to be discounted. 4. Q4 guidance determines whether the market is willing to continue paying a premium for AI growth Compared with the Q3 results themselves, Q4 guidance may have a more direct impact on ON Semiconductor Corporation's stock price. Based on current analyst expectations, ON Semiconductor Corporation's Q4 revenue is approximately US$1.74 billion, with adjusted earnings per share of approximately US$0.96. This means the market has already to some extent priced in expectations of continued AI data center business growth, capacity utilization improvement and gross margin expansion. Therefore, even if Q3 revenue and earnings per share beat market expectations, if management's Q4 guidance merely meets expectations or its language on the AI business growth outlook becomes more cautious, the stock price may not necessarily receive a significant boost. Overall, the impact of ON Semiconductor Corporation's earnings report on market sentiment may not be limited to the company's own stock price, but will also provide investors with an important reference for judging the prosperity of the AI infrastructure supply chain. The most important metric to watch is whether AI data center business growth can simultaneously drive improvement in revenue, gross margin and free cash flow. If all three improve in tandem, ON Semiconductor Corporation could become a beneficiary case of AI investment spreading from compute chips to power infrastructure, and could also provide positive demand validation for the AI supply chain amid market doubts about the sustainability of AI capital expenditure. But if the AI business grows rapidly while overall gross margin and cash flow do not improve significantly, the market may further distinguish between the true profit beneficiaries in the AI supply chain and suppliers that merely enjoy demand growth.