Why ON Semiconductor Stock Surged Monday

ON Semiconductor (NASDAQ: ON) stock price jumped Monday thanks to better-than-expected second-quarter results. The chip company's share price closed out the trading session up 11.5%, according to data from S&P Global Market Intelligence .

ON Semi reported Q2 results before the market opened Monday, posting results that beat Wall Street's expectations. The company reported non-GAAP (adjusted) EPS of $0.96 on sales of $1.74 billion. For comparison, the average analyst estimate had called for EPS of $0.92 on revenue of $1.73 billion.

ON Semiconductor stock pops on strong Q2 report

ON Semi's revenue fell roughly 17% year over year in Q2, but the performance was still better than expected. Adjusted EPS was also down roughly 28% year over year, but margins in this year's quarter still beat Wall Street's target. In addition to sales and earnings beats in Q2, the company also posted guidance that bolstered bullish sentiment on the stock.

With today's quarterly report and guidance, some investors are betting that ON is on the verge of benefiting from a cyclical upswing. But even after today's valuation bump, ON Semi's share price is still down roughly 26% over the last year and roughly 6% across 2024's trading.

What comes next for ON Semi?

For the third quarter, ON Semi is guiding for sales to come in at between $1.7 billion and $1.8 billion. Meanwhile, adjusted EPS is forecasted to be between $0.91 and $1.03. Management expects an adjusted gross margin between 44.4% and 46.4%.

For comparison, the company recorded sales of $2.18 billion in last year's quarter and an adjusted gross margin of 47.3%. Adjusted earnings came in at $1.29 per share in last year's quarter.

ON PE Ratio (Forward) data by YCharts.

ON Semi is now valued at roughly 19.5 times this year's expected profits, which might look expensive given that the company's sales and earnings have seen substantial declines lately. But the company's business is quite cyclical, and it's possible that performance will see an upswing in the not-too-distant future.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends S&P Global. The Motley Fool recommends ON Semiconductor. The Motley Fool has a disclosure policy .