onsemi downgraded by TD Cowen after Synaptics deal clouds growth story

Investing.com -- TD Cowen downgraded onsemi to Hold from Buy, arguing that the company's planned acquisition of Synaptics complicates its investment thesis despite maintaining confidence in its long-term automotive and datacenter growth prospects.

The brokerage also lowered its price target to $110 from $115, saying the stock's sharp rally this year leaves limited upside.

onsemi late on Thursday announced the all-stock deal aimed at expanding the chipmaker's presence in artificial intelligence-driven intelligent systems and strengthening its position in emerging Physical AI applications.

The brokerage believes the all-stock acquisition adds strategic breadth but dilutes onsemi's narrative as a pure-play beneficiary of automotive electrification and datacenter power demand. While management highlighted the combination's potential to expand its addressable market in Physical AI, TD Cowen sees the transaction introducing greater exposure to consumer and wireless markets through Synaptics, making the business more complex for investors.

TD Cowen said the acquisition brings complementary products and customers, but questioned whether Synaptics' edge AI processors are significant enough to establish onsemi as a major competitor against larger, diversified semiconductor companies. The firm also noted that management offered limited detail on revenue synergies beyond cross-selling opportunities.

The analyst acknowledged the deal's targeted $200 million in annual synergies, primarily from operating expense reductions, but said it would have preferred clearer manufacturing-related cost savings that could structurally improve gross margins. It expects meaningful earnings accretion only in 2028 or 2029, while estimating roughly 12% equity dilution for existing shareholders.

Beyond the acquisition, TD Cowen said onsemi's core business still faces near-term challenges, including elevated inventory levels, business exits that continue to weigh on growth, and a margin recovery that depends on higher production volumes to reduce underutilization costs. The firm also highlighted pricing pressure in the company's power discrete portfolio, which accounts for about half of sales.

On June 25, onsemi announced a definitive agreement to acquire Synaptics in an all-stock transaction valuing the target at an enterprise value of about $7 billion, with the deal expected to close in mid-2027 subject to shareholder and regulatory approvals. The company reiterated its second-quarter 2026 financial outlook alongside the announcement.

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