Written by: Rita

ON Semiconductor's (ON) second quarter financial report is the most anticipated event in the semiconductor sector this week. A comment from JPMorgan experts on August 3 indicated that there is a significant divergence in the market regarding ON's acquisition of SYNA, with many investors worried that this deal dilutes the high-pressure data center narrative and contradicts the CEO's previous commitment to divest non-core businesses and focus on the main business. However, over the past month, new long positions and short covering have significantly increased, as ON has shifted from a net short to a slightly net short position, with a roughly 25% stock price pullback being viewed by many investors as excessive. JPMorgan's buy-side survey shows that about 60% of respondents expect ON to slightly raise its AI revenue target for 2026 (currently about $500 million), with the market's expectations being very low, meaning that the stock price has fully reflected the pessimistic sentiment. The implied volatility for ON's financial report is at 7.5%.

JPMorgan also released buy-side expectation surveys for AMAT, AMD, ANET, COHR, CSCO, LITE, SNDK, and WDC simultaneously. For most companies, buy-side revenue, gross margin, and earnings per share averages are higher than both company guidance and market consensus, indicating a non-pessimistic outlook for the semiconductor sector.

ON has the largest divergence, expectations have hit the bottom

ON is the most controversial target in this week's semiconductor earnings reports. According to JPMorgan experts, the market has extremely strong negative sentiment towards the SYNA transaction, with some investors believing that this deal dilutes the high-pressure data center narrative and goes against Hassan's earlier commitment to exit non-core businesses and focus on strategic direction. However, in the past month, both new long positions and short covering have occurred simultaneously, with the roughly 25% stock price pullback seen by many as an overreaction; ON is currently in a slightly net short position.

JPMorgan's buy-side survey shows that the market's average expectations for ON's second-quarter revenue is $1.61 billion (with the company's midpoint guidance at $1.59 billion), gross margin at 39.5% (guidance at 39.0%), and earnings per share at $0.75 (guidance at $0.71). The average guidance for third-quarter revenue is $1.70 billion (company guidance $1.66 billion), gross margin at 40.8% (guidance at 40.3%), and earnings per share at $0.88 (guidance at $0.83). For the fiscal year 2027, the average earnings per share is expected to be $3.57, significantly higher than the company's guidance of $3.11.

The AI business is the focal point of market attention. Approximately 60% of respondents expect ON to slightly raise its AI revenue target for 2026 (currently about $500 million), with expectations ranging from “qualitative statements with no specific numbers” to “moderately raising to $550 million.” JPMorgan believes that ON's AI expectations are extremely low and that the stock price has fully accounted for the pessimistic sentiment. Some investors hold ON not for its performance but are betting that it might be reassessed alongside ST and TXN.

Buy-side expectations for AMAT, AMD, ANET, and eight other companies are generally higher than guidance

JPMorgan simultaneously released the buy-side survey results for eight semiconductor and hardware companies.

AMAT's fourth quarter revenue buy-side average is $9.22 billion (company guidance $8.95 billion), gross margin at 50.5% (guidance 50.1%), and earnings per share at $3.49 (guidance $3.36). For the fiscal year 2027, the average earnings per share is expected to be $17.80, far exceeding the company guidance of $17.10. AMAT is a core target in the semiconductor equipment field, with market shares in deposition and etch equipment in advanced logic and DRAM continuing to expand.

AMD's fourth quarter revenue buy-side average is $11.72 billion (company guidance $11.2 billion), data center revenue $6.96 billion (company guidance $6.55 billion), gross margin at 56.5% (guidance 56.0%), and earnings per share at $1.73 (guidance $1.63). For the fiscal year 2027, the average earnings per share is expected to be $18.17, well above the company guidance of $13.66.

Arista (ANET) has a fourth quarter revenue buy-side average of $2.90 billion (company guidance $2.80 billion), deferred revenue of $7.04 billion (company guidance $6.20 billion), and earnings per share at $0.92 (guidance $0.88). For the fiscal year 2027, the average earnings per share is expected to be $5.34 (company guidance $4.42).

Coherent (COHR) has a fourth quarter revenue buy-side average of $2.05 billion (company guidance $1.98 billion), gross margin at 40.4% (guidance 40.0%), and earnings per share at $1.72 (guidance $1.62). For the fiscal year 2027, the average earnings per share is expected to be $11.86 (company guidance $8.47).

Cisco (CSCO) has a fourth quarter revenue buy-side average of $17.06 billion (company guidance $16.80 billion), gross margin at 66.2% (guidance 66.0%), and earnings per share at $1.22 (guidance $1.17).

Lumentum (LITE) has a first quarter revenue buy-side average of $120 million (company guidance $115 million), and earnings per share at $3.66 (guidance $3.55). For the fiscal year 2028, the average earnings per share is expected to be $40.14 (company guidance $33.00).

Sandisk (SNDK) has a fourth quarter revenue buy-side average of $9.58 billion (company guidance $8.00 billion), gross margin at 84.2% (guidance 79.9%), and earnings per share at $41.87 (guidance $34.71). For the fiscal year 2027, the average earnings per share is expected to be $266.77 (company guidance $200.00).

Western Digital (WDC) has a fourth quarter revenue buy-side average of $3.77 billion (company guidance $3.65 billion), gross margin at 53.7% (guidance 51.2%), and earnings per share at $3.61 (guidance $3.25). For the fiscal year 2027, the average earnings per share is expected to be $24.00 (company guidance $18.79).

Buy-side expectations are more optimistic than stock prices

The core signal from JPMorgan's buy-side survey is that the market's earnings expectations for the semiconductor sector are generally higher than company guidance. Among the eight companies, the vast majority show that buy-side averages for revenue, gross margin, and earnings per share are all higher than the midpoint of management's guidance. AMAT, AMD, ANET, COHR, LITE, SNDK, and WDC all have significantly higher average earnings per share estimates for the fiscal year 2027 compared to company guidance.

This contrasts sharply with the pessimistic sentiment in the secondary market. The AI momentum unwinding in July led to a significant pullback in the semiconductor sector, but the buy-side survey indicates that investor expectations for the financial reports themselves are not low. Implied volatility data reflects this point as well, with AMAT's implied volatility at 18% on the day following the financial report, significantly higher than the historical average. Low market expectations mean that the threshold for exceeding financial report expectations is rising.

ON is the exception. The market has extremely low expectations for its AI prospects, the stock price has already fallen by 25%, and the buy-side survey shows that the market only has expectations of a “slight upward adjustment” for its AI business targets. JPMorgan believes that such low expectations actually provide greater room for performance to exceed expectations. If ON can provide better-than-expected guidance for its AI business, the potential for stock price appreciation may be greater than the market believes.

Disclaimer: This article is a compilation and interpretation of third-party brokerage research reports (JPMorgan, August 3, 2026) by Chao Xiang Research, combined with publicly available market information. The ratings, target prices, earnings forecasts, and related judgments cited in this article are solely the views of the analysts of that brokerage and represent the positions of their respective institutions, not the views of Chao Xiang Research, nor does it constitute any investment advice. The market carries risks; decisions should be made independently. This article should not be used as a basis for the buying or selling of any securities.