ON Q1 Deep Dive: AI Data Center and Automotive Momentum Drive Revenue Beat Amid Inventory Build

Analog chips maker onsemi (NASDAQ:ON) announced better-than-expected revenue in Q1 CY2026, with sales up 4.7% year on year to $1.51 billion. On top of that, next quarter’s revenue guidance ($1.59 billion at the midpoint) was surprisingly good and 3.5% above what analysts were expecting. Its non-GAAP profit of $0.64 per share was 4% above analysts’ consensus estimates.

Is now the time to buy ON? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

onsemi’s first quarter results were met with a clearly negative market reaction, despite the company surpassing Wall Street’s revenue and non-GAAP earnings expectations. Management identified accelerating demand in AI data centers and initial signs of stabilization in automotive as primary drivers, highlighting a significant ramp in the Treo product platform and strong sequential growth in their power portfolio. CEO Hassane El-Khoury stated that “improving demand signals and accelerating AI data center growth demonstrate that the structural changes we made over the past several years are now translating into tangible financial results.”

Looking ahead, management’s outlook is anchored by expectations for continued gross margin improvement and robust growth in AI data center and automotive segments. The company is projecting further revenue momentum as new products ramp, especially in power solutions for data centers and next-generation electric vehicles. CFO Thad Trent emphasized, “We expect sequential gross margin expansion throughout the year,” and noted that disciplined investment in focused product lines should drive operating leverage and support profitability improvements, even as some input costs remain elevated.

Key Insights from Management’s Remarks

Management attributed first quarter outperformance to accelerating adoption in AI data centers, initial recovery in automotive, and successful execution of new product launches, particularly in the Treo and gallium nitride portfolios.

• AI Data Center Surge: Revenue from AI data centers grew over 30% sequentially, nearly doubling management’s initial expectations and reflecting broader adoption of onsemi’s PowerTree solutions by leading hyperscalers and XPU vendors.
• Treo Platform Ramp: The Treo analog/mixed-signal platform saw revenue increase more than 2.5 times sequentially, expanding adoption in automotive (notably zonal architectures and park-assist systems), industrial automation, and AI applications.
• Automotive Content Gains: Despite a 6% decline in China’s passenger vehicle market, onsemi grew automotive revenue in China, driven by expanded silicon carbide and IGBT content in electric vehicles and new design wins with major OEMs.
• Gallium Nitride (GaN) Progress: The GaN solutions design funnel now exceeds $1.5 billion, with 10 products sampling and another 20 expected in 2026. Management highlighted a balanced approach of internal development and foundry partnerships to ensure resilient supply.
• Distribution Channel Strength: Mass market revenue through distribution grew 35% year over year, aided by targeted inventory investments and broader product availability, supporting growth across small and medium-sized customers.

Drivers of Future Performance

Management expects the pace of recovery to accelerate, with AI data center and automotive adoption, new product ramps, and improved manufacturing utilization driving revenue and margin expansion.

• AI Data Center Expansion: The company anticipates AI data center revenue will double in 2026, supported by deeper engagement with hyperscalers and a broad product offering spanning high-voltage conversion to system-level integration. Management sees this as a primary driver of both top-line growth and higher gross margins.
• Automotive and EV Tailwinds: Management expects ongoing growth in electric vehicle content, including silicon carbide and IGBT solutions, to outpace broader market trends. The ramp of 900-volt architectures in China and expanded collaborations with global OEMs are positioned as key contributors.
• Margin Leverage and Utilization: Sequential improvement in manufacturing utilization is forecast to support gross margin expansion. While input costs are rising, management plans to offset these through pricing adjustments and continued cost optimization, with additional margin upside expected from the ramp of high-margin products like Treo.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the ramp and revenue contribution of new Treo and gallium nitride products, (2) further evidence of AI data center and automotive demand driving sustained gross margin gains, and (3) progress in inventory normalization, particularly as strategic inventory is depleted. The balance between pricing actions and input cost inflation will also be a key area of focus.

onsemi currently trades at $97.84, down from $103.26 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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