To The Moon

$Advanced Micro Devices(AMD)$ $ON Semiconductor(ON)$

The semiconductor industry has long been dominated by a handful of giants — Intel, TSMC, Samsung, and NVIDIA — whose names have become synonymous with technological leadership and stock market performance. But in the shadows of these industry titans, a new class of "second-tier" semiconductor stocks is starting to shine. Companies like Advanced Micro Devices (AMD) and ON Semiconductor (ON) have proven in recent quarters that they can outperform expectations, innovate aggressively, and deliver significant shareholder returns.

As markets recalibrate after a volatile 2024 marked by cyclical downturns, supply chain normalization, and a massive AI-driven rally, the question arises: Are second-tier semiconductor names poised for even more upside? Below, we explore the fundamentals, recent performance, strategic positioning, and valuation of AMD and ON, and examine the broader investment case for overlooked semiconductor players.

The Rise of the “Second Tier” in a New Market Cycle

For decades, semiconductor investors tended to focus narrowly on the biggest and most dominant players — particularly Intel in CPUs, TSMC in foundries, and NVIDIA in GPUs. These companies still command enormous influence over the industry and capture much of the media spotlight.

However, as technological complexity increases and end-market demands fragment — from automotive chips to AI accelerators to low-power IoT devices — the competitive landscape is broadening. Smaller, more specialized firms are capitalizing on niche opportunities, often growing faster and delivering better returns on capital than their larger peers.

AMD, which has long lived in Intel’s shadow in the CPU market, has staged one of the most impressive turnarounds in corporate history. Similarly, ON Semiconductor has transitioned from a cyclical commodity player to a leader in high-value power and sensing solutions for automotive and industrial markets. Both names have handily outperformed the Philadelphia Semiconductor Index over the past year.

AMD: From Underdog to AI Contender

Advanced Micro Devices (NASDAQ: AMD) has spent the last several years proving that it can compete head-to-head with Intel in CPUs while establishing a strong presence in GPUs and, more recently, in AI accelerators. CEO Lisa Su’s disciplined strategy of focusing on high-performance, high-margin products has paid off.

In its latest quarterly results, AMD reported revenue of $5.7 billion, up 4% year-over-year, with strength in data center and embedded segments offsetting continued softness in client PCs. Importantly, its EPYC server chips continue to gain share against Intel in data centers, while its MI300 AI accelerators are gaining traction as a competitive alternative to NVIDIA’s dominant H100s.

Gross margins have improved to nearly 52%, and management guided for double-digit growth in AI-related revenues for the remainder of 2025. AMD’s strong balance sheet, with over $5 billion in cash and manageable debt, gives it flexibility to invest aggressively in R&D while returning capital to shareholders.

Valuation-wise, AMD trades at roughly 35x forward earnings — not cheap, but reasonable given its growth prospects and expanding addressable markets in AI, cloud, and embedded systems.

ON Semiconductor: Quiet Transformation into an Automotive Powerhouse

ON Semiconductor (NASDAQ: ON) represents a very different, but equally compelling, second-tier semiconductor story. Traditionally known for its commodity analog and power products, ON has spent the last few years reshaping its portfolio around high-margin, high-growth end markets — particularly electric vehicles (EVs), autonomous driving, and industrial automation.

In its most recent earnings report, ON posted revenue of $2.1 billion, up modestly year-over-year, but more importantly, gross margins expanded to 49% — a record high — reflecting its strategic shift toward silicon carbide (SiC) power solutions and advanced imaging sensors for ADAS (advanced driver-assistance systems).

The company has secured design wins with nearly every major EV maker, positioning itself as a critical supplier in a market that’s projected to grow at a CAGR of over 20% through the end of the decade. ON has also focused on operational excellence, reducing its debt load and generating robust free cash flow of over $1.2 billion in the last 12 months.

Currently trading at around 16x forward earnings, ON offers a more attractively priced growth story compared to many peers, making it a favorite among investors looking for value in the semiconductor sector.

Why the Market Often Underestimates the “Second Tier”

One reason second-tier semiconductor stocks like AMD and ON continue to outperform expectations is that investors often underestimate their ability to execute. Market narratives tend to be sticky — AMD as the perennial runner-up to Intel, ON as a low-end analog supplier — and it takes several quarters of consistent performance to shift perception.

Moreover, the semiconductor market is no longer a winner-takes-all arena. The diversity of end markets — from AI data centers to EVs to edge computing — creates opportunities for smaller players to dominate specific niches without necessarily competing head-to-head with the giants.

Finally, second-tier names often benefit from being more nimble, making faster strategic pivots and delivering more targeted innovation, something large incumbents with massive legacy businesses can struggle to match.

Bull and Bear Scenario Table: AMD & ON

• AMD: Trading close to base case fair value, already pricing in substantial AI upside. Long-term thesis remains intact, but risk/reward is balanced at current levels. Suggest holding existing positions and adding only on dips below ~$130 for a better margin of safety.

• ON: Trading below base case fair value with a structural growth story tied to EVs and industrial markets. Execution has been strong and valuation remains reasonable. Recommended as a BUY for investors with a medium-to-long-term horizon.

Valuations and Entry Points: Still Room to Run?

The rally in semiconductor stocks over the past year has lifted valuations across the sector, but some second-tier names still look more reasonably priced relative to their growth potential.

• AMD: Trading at ~35x forward earnings with consensus earnings growth estimates of ~20% annually over the next three years. Its PEG ratio remains under 2, suggesting the premium is justified by its AI and data center opportunities.

• ON: Trading at ~16x forward earnings, with expected EPS growth of ~15% annually. This gives it a PEG ratio just above 1, implying an attractive risk/reward balance, especially given its entrenched position in EV and industrial markets.

Investors should, of course, be mindful of the cyclical nature of semiconductors, and consider building positions gradually, particularly on pullbacks.

Verdict: Buy, Sell, or Hold

AMD: HOLD (With Bias to Accumulate on Weakness)

• At ~$145, AMD trades near base-case fair value of ~$144.

• Current multiple already prices in significant AI-related growth.

• Patience warranted — accumulate below ~$130 for a better risk/reward.

ON: BUY (With Medium-Term Horizon)

• At ~$75, ON trades below its base-case fair value of ~$81.

• Well-positioned in structural EV & industrial trends with solid execution.

• Attractive entry point for long-term investors; accumulate in the $70–75 range.

Risks: Cyclicality, Competition, and Execution

Investing in second-tier semiconductor stocks is not without risks. Both AMD and ON operate in cyclical industries, and while structural demand trends are favorable, short-term downturns can still pressure margins and earnings.

For AMD, the competitive threat from NVIDIA and Intel in AI and server markets remains significant. Execution missteps or delays in ramping up its AI products could disappoint investors.

For ON, execution risk around its silicon carbide ramp and potential price competition in automotive components could weigh on its valuation. Additionally, the pace of EV adoption is a key variable that remains subject to broader macroeconomic forces.

The Case for Diversified Exposure Beyond the Giants

While mega-cap semiconductor stocks will likely remain core holdings for many investors, there is a strong case for complementing those positions with select second-tier names like AMD and ON. These companies combine niche leadership, improving profitability, and strategic focus, all while offering higher growth potential and, in some cases, more attractive valuations.

For long-term investors with a moderate risk tolerance, adding exposure to these names provides diversification within the semiconductor sector and the potential for outsized returns if current execution trends continue.

Conclusion: Key Takeaways for Investors

• The giants don’t capture all the upside: AMD and ON have demonstrated that smaller semiconductor players can execute, innovate, and grow faster than the largest names.

• Secular tailwinds remain strong: Demand for AI accelerators, EV power solutions, and industrial automation continue to drive growth in their respective niches.

• Valuations remain reasonable: While the sector has rallied, these names still trade at multiples that reflect their execution risk but leave room for further upside.

• Risk management is key: Investors should recognize the inherent cyclicality of semiconductors and scale positions accordingly.

Home-run investments in semiconductors are no longer confined to a few mega-cap names. As AMD and ON have shown, the next chapter of semiconductor growth may very well be written beyond the giants — in the agile, focused, and increasingly indispensable second tier.

For investors willing to look past the headlines and dig into fundamentals, the case for upside in AMD, ON, and other second-tier semiconductor stocks is compelling. The future of chips is wide open — and opportunity lies beyond the giants.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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