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ON Semiconductor (ON) cratered on June 26 after the company signed a definitive agreement to buy San Jose-headquartered edge-AI and connectivity specialist Synaptics (SYNA).
The announcement of this all-stock transaction shaved billions off ON’s market cap and pushed it decisively below its 20-day and 50-day moving averages (MAs), indicating shifting momentum in favor of the bears.
Despite today’s selloff, however, ON stock remains a winning investment, currently up about 67% versus the start of this year.
Why Investors Sold Off ON Stock on Synaptics News
For Synaptics investors, this $7 billion deal replaces each SYNA share with 1.35 common shares of Phoenix-headquartered ON Semiconductor.
The transaction signals immediate, meaningful dilution for those invested in ON, which is primarily why the stock sold off on Friday morning.
The pullback also reflects concerns of a stark strategic mismatch; Synaptics historically focuses on highly cyclical consumer electronics, which threatens to dilute ON’s commitment to high-margin verticals like automotive, industrial, and booming AI data center infrastructure.
Note that ON shares are still going for a forward price-to-earnings (P/E) multiple of nearly 38x, which makes it more expensive to own than the best-of-break AI stocks, even including Nvidia (NVDA) at about 23x.
Where Options Data Suggests ON Shares Are Headed
Adding to bearish momentum in ON stock on June 26 is a dovish note from TD Securities’ senior analyst Joshua Buchalter.
Buchalter maintained a “Hold” rating on the artificial intelligence infrastructure firm, and lowered his price target to $110, citing concerns that Synaptics acquisition adds complexity to the business and may act as a distraction over the next year.
Crucially, options traders agree. The put-to-call ratio on contracts expiring in late August sits at 3.14x, indicating a very strong bearish skew.
According to Barchart, the lower price on those contracts is set at about $71 currently, signaling potential for another 21% decline over the next two months.
Wall Street’s View on ON Semiconductor
Heading into June 26, Wall Street had a consensus “Moderate Buy” rating on ON Semiconductor, with price targets as high as $150.
However, the dilution and distraction concerns could trigger a wave of downward revisions like TD Securities’ in the weeks ahead.
On the date of publication, Wajeeh Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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