ON Semiconductor: From $5K to $115K Per Rack — The 800-Volt Opportunity Wall Street Is Underestimating
BofA Global Technology Conference, June 3, 2026 — CEO Hassane El-Khoury and CFO Thad Trent make the case for a multi-year margin and revenue inflection
The Data Center Number That Changes the Story
The single most important disclosure from ON Semiconductor's appearance at the Bank of America Global Technology Conference was a dollar figure that reframes the company's data center opportunity entirely. CEO Hassane El-Khoury laid out the math with unusual specificity: in today's rack architecture, ON Semi sees roughly $15,000 of content opportunity per rack, of which approximately $5,000 is high-voltage. In an 800-volt rack running 600 kilowatts to one megawatt, that high-voltage content number jumps to $55,000. Total rack content reaches $115,000. "You're going from $5,000 to $55,000," El-Khoury said. "That jump is an opportunity forward-looking of capabilities we have today." The company is not waiting to develop those capabilities — it says it already has them.
The mechanism behind that claim is vertical gallium nitride, or GaN. El-Khoury was unusually direct in asserting a competitive moat: "Nobody in the world has GaN that can do 800-volt in a single chip. You need vertical GaN 1,200-volt. We are the only company that does that." The practical implication is that while competitors may offer GaN-based solutions for high-frequency power conversion, ON Semi argues it can deliver the same conversion in half the physical footprint. In a data center where rack space commands a premium, that size advantage translates directly into customer willingness to pay — and, by extension, into pricing power and margin.
The company said its AI data center revenue doubled year-over-year in Q1 and came in "2x better than what we expected walking into the quarter." Management confirmed that doubling for the full year remains the target, driven by design wins already in ramp rather than speculative backlog.
Silicon Carbide: The Substrate Debate Is the Wrong Debate
With Chinese substrate suppliers visibly struggling under excess capacity, the conference was an opportunity for ON Semi to clarify where it actually competes in the silicon carbide supply chain — and where it does not. El-Khoury's answer was characteristically blunt. "Nobody is going to win because of the word substrate. Nobody talks about silicon substrates. They all talk about what product do you put on the silicon." The company maintains internal wafer production for supply assurance rather than differentiation, and it sources externally where pricing is favorable. The excess Chinese substrate capacity, in his framing, is simply a benign input cost benefit.
What matters, he argued, is device performance. ON Semi claims to be two to three generations ahead of competitors on silicon carbide devices, and it points to market share in China — over 50% in the domestic EV market this year, up from approximately 50% last year — as evidence that Chinese OEMs are choosing its technology despite having access to local substrate supply. Design win announcements with Geely and NIO underscore the point. Critically, the same 800-volt architecture that drives silicon carbide dominance in EVs is identical to what data centers need as they migrate to higher-voltage power distribution. El-Khoury noted this convergence without understatement: "The AI data center just came into our competitive domain."
The Inflection Call and Why Management Is Confident in a Stronger Second Half
El-Khoury had previously described Q1 2026 as an inflection point, and at the conference he explained the specific signals that led to that characterization: backlog layering further out in time than in prior quarters, extending lead times, and a manufacturing PMI that crossed above 50. CFO Thad Trent added a concrete data point — Q3 and Q4 are better booked today than they were at the same point in either of the prior two years.
Management's confidence that the second half will outgrow the first half rests on three distinct drivers. First, program ramps that began in Q1 will generate full-quarter contributions in subsequent periods. Second, renewable energy infrastructure — microgrids and energy storage systems supporting data centers — is expected to resume growth in the second half based on current backlog. Third, automotive content expansion, including the ramp of 10BASE-T1S Ethernet connectivity in the second half of 2026, adds revenue that simply did not exist in the prior year.
One distinction management was careful to preserve: automotive is not yet in cyclical recovery. The improvement reflects a normalization from below-demand shipments back to end demand, plus content growth from electrification. True replenishment, El-Khoury said, has not happened yet. "We haven't seen the automotive recovery. What we're seeing in auto is a click up to natural demand and the content." That framing matters because it implies recovery tailwinds in automotive are still ahead rather than already in the numbers.
Beyond Silicon Carbide: The Automotive Content Story Is Underappreciated
With 53% of revenue coming from automotive, the silicon carbide narrative tends to dominate investor perception of ON Semi's auto exposure. El-Khoury spent time correcting that. The company claims the number-one global position in ultrasonic sensing, inductive position sensing, and is ramping automotive Ethernet connectivity — all of which are relevant not just in vehicles but in the emerging robotics and humanoid market. "Brake by wire, accelerated by wire, steer by wire — and what has a ton of positions? Humanoids and robots." Zonal architecture in vehicles, which consolidates domain controllers into distributed zone boxes, creates a bundled opportunity in both power distribution and communications to each zone — two capabilities ON Semi says it leads in simultaneously.
On the silicon carbide module-versus-device transition that weighed on revenue recognition over the past two years, El-Khoury said the rebalancing is "primarily behind us." He noted, however, that it was never a binary shift — the Volkswagen SSP platform actually runs in the opposite direction, using a power box module approach. "We're able to differentiate at a system level," he said, arguing that margins are equivalent across device and module formats because value extraction is consistent either way.
Gross Margin Recovery Has a Defined Roadmap
With gross margins currently in the high thirties — a distance from the company's previously articulated low-fifties target — Trent used the conference to walk through the specific bridge. Utilization moved from 68% to 77% in a single quarter, and management estimates each point of utilization improvement delivers 25 to 30 basis points of gross margin two quarters later. Additional self-help measures — ongoing fab rationalization, internal manufacturing of previously outsourced products, and mix shift toward differentiated products — each contribute approximately 200 basis points. A price increase effective April 1 will flow through the income statement more fully in the second half, as input cost inflation has already been absorbed. "The math I just gave you gets to a 5 handle very quickly," Trent said, referring to a greater-than-50% gross margin target.
Free cash flow margin of 24% in what management characterizes as a downturn year is the structural proof point underlying the gross margin argument. El-Khoury framed the transformation succinctly: "ON Semiconductor historically has been a manufacturing company. ON Semi today is a product company that happens to manufacture." He argued the old model — filling fabs at discounted pricing — destroyed value because prices, once cut, were difficult to recover. The new model held pricing discipline through the downturn at the cost of revenue, preserving margin structure for the recovery.
Capital Return and the Buyback at $130
ON Semi holds a $6 billion share repurchase authorization and has committed to returning 100% of free cash flow to shareholders after organic investment and any M&A optionality. Trent noted the company accelerated buybacks in Q1 at an average price just above $60, which he described as exploiting a market dislocation. Asked directly whether the buyback remains attractive with the stock closer to $130, his answer was unambiguous: "We still like it." Management provided no specific M&A signals beyond confirming balance sheet flexibility exists for that purpose.
Trent flagged that an Analyst Day later in 2026 will provide more formal long-term revenue and margin targets, declining to preview specific growth rate guidance at the conference. El-Khoury acknowledged that consensus models ON Semi as a low-double-digit revenue growth company over the next two to three years, and while he declined to quantify an alternative, he pointed to consistent above-market growth on a like-for-like basis — adjusting for approximately $300 million in product line exits — as evidence that the structural work done during the downturn is not yet reflected in forward numbers.