800V Transition Fuels Analog Chip Recovery; Raises Target Prices for TXN and ON

Overview

This report provides an in-depth analysis of opportunities within the U.S. semiconductor industry amid the transition of data centers to 800V direct current (DC) architecture, focusing particularly on analog chips and connectors. Citi Research posits that this technological shift will usher in a more robust recovery cycle than the previous one. The report reaffirms Texas Instruments (TXN) as the sector’s top choice, given its anticipated ability to gain market share in data center power supplies starting in the second half of 2026, while also initiating a 90-day upside catalyst watch on ON Semiconductor, expecting it to showcase fresh impetus in its silicon carbide (SiC) business during its September analyst day. Profit forecasts and target prices for both TXN and ON have been raised, primarily due to recent industry-wide price increases and surging demand from data centers.

Core views

Evolution of Data Center Power Architectures: With AI workloads skyrocketing, rack-level power capacities are advancing from current 100–130 kW toward 600 kW by 2027 (Rubin Ultra) and beyond 1 MW post-2028, pushing traditional 48V architectures to physical limits. The industry is transitioning to high-voltage DC (HVDC) systems, including ±400V HVDC powered by CSP (sidecar architecture, widely deployed from 2027) and 800V HVDC driven by NVIDIA (sidecar and solid-state transformer SST architecture, slated for large-scale deployment after 2029). This transformation significantly elevates the value of power conversion and protection components. Market Size and Growth Potential: Citi estimates that the rack-level GPU power delivery market—encompassing conversions from 800V down to sub-1V—will expand from approximately $2 billion in 2025 to $12 billion by 2028, growing at a compounded annual growth rate (CAGR) exceeding 70%. Meanwhile, the broader data center analog and power semiconductor TAM is projected to surge from $9 billion in 2025 to $35 billion by 2030, with an annual CAGR of roughly 30%. In 2026, sales of analog chips related to data centers are expected to climb 86% year-over-year, reaching $17 billion. Technology Roadmap and Material Choices: At the rack level, gallium nitride (GaN) is being adopted first due to its suitability for conversions below 650V; meanwhile, silicon carbide (SiC) holds advantages for higher-power single-stage conversions above 1,000V. TXN stands out as one of the few suppliers capable of handling high-voltage GaN, having doubled its internal production capacity since October 2024, while ON boasts differentiated strengths in SiC and vertical GaN technologies. Analog Chip Cycle Recovery: Current conditions mirror those of 2021–2023, with mature-node utilization rates now back at 80%, approaching the optimal range of 85–90%. Although unit sales remain 30–40% below peak levels, widespread price hikes—such as those implemented by Infineon, TXN, NXP, and others—coupled with sustained demand from data centers, suggest ample room for further cyclical recovery. Compared to the prior cycle, this round is fueled by higher semiconductor content and architectural shifts, lending it stronger momentum. Individual Stock Perspectives: 1. Texas Instruments (TXN): Reaffirmed Buy rating. As the company with the highest internal manufacturing ratio (~85%), TXN stands to benefit most from margin expansion driven by rising utilization rates. It is expected to begin capturing market share in Rubin GPU power deliveries in the second half of 2026. Target price raised from $280 to $345, based on a 30x multiple of 2028 EPS. 2. ON Semiconductor: Maintained Neutral rating, but initiated an upside catalyst watch. Despite mixed automotive demand suppressing gross margins, increased exposure to data center power supplies and renewed momentum in SiC business offer upside potential. Target price raised from $100 to $120, based on a 20x multiple of 2028 EPS. Investors should closely monitor disclosures at its September analyst day regarding data center opportunities and progress in vertical GaN technology.

Analysis framework

Citi employed a hybrid top-down and bottom-up analytical framework. First, starting from the physical constraints imposed by increasing power densities in data centers, the report deduced the inevitability of the 800V DC transition and outlined timelines for different architectures (±400V vs. 800V SST). Next, by dissecting the power supply chain—from grid to core—the report quantified incremental semiconductor content across various stages (HVDC, VRM, GaN/SiC devices), thereby estimating TAM and CAGR. Subsequently, drawing on historical cycle data—utilization rates, average selling prices (ASPs), and sales volumes—the report compared the current analog chip recovery phase to assess the sustainability of price hikes and inventory restocking efforts. Finally, considering each company’s unique attributes—new technologies (GaN/SiC), internal manufacturing capabilities, and customer base—the report evaluated changes in market share and profit margin elasticity, adjusting earnings forecasts and target prices accordingly.

Methodology notes

• Industry/Supply-Demand Analysis FrameworkSupply-demand framework

  Assessing the industry’s cyclical position by analyzing mature-node fab utilization rates (Supply) alongside data center/AI demand (Demand).

  The report monitors whether fab utilization rates approach the optimal range (85–90%) and whether downstream demand is recovering, determining if the analog chip industry is in the early stages of recovery—a classic supply-demand method for identifying turning points in cyclical stocks.

• Industry/Supply-Chains Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Tracing the power conversion chain from grid to server core, evaluating how voltage-level changes impact semiconductor value across different stages.

  The report breaks down data center power systems into multiple tiers (Grid, Hall, Rack, Core), analyzing how the 800V transition triggers component replacements (e.g., SiC/GaN penetration) at each level, pinpointing beneficiary segments and companies.

• Valuation MethodologyPE/PEG valuation

  Setting target prices based on projected future earnings per share (EPS) and applying industry-average PE multiples.

  The report calculates target prices by multiplying 2028 EPS projections by targeted PE ratios (e.g., 30x for TXN, 20x for ON), reflecting market premiums applied to high-growth companies.

• Company Fundamentals and Financial Leverage AnalysisOperating/Financial Leverage Analysis

  Companies with high internal manufacturing ratios exhibit greater profit-margin expansion elasticity when utilization rates rise.

  The report highlights TXN and ON’s high internal manufacturing shares (85% and 65%, respectively), noting that as capacity utilization rebounds from lows, fixed costs are spread over fewer units, leading to significant gross margin improvements—demonstrating operating leverage effects.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Texas Instruments (TXN.US)

  Beneficiary: Expected to capture market share in data center power supplies starting H2 2026, with high internal manufacturing supporting margin expansion.

  Strengths

  Internal manufacturing ratio as high as 85%, doubled high-voltage GaN capacity, strong cost control.

  Weaknesses

  High proportion of industrial and automotive revenue, susceptible to macroeconomic cycles.

  Comparison

  Compared to peers, TXN offers the greatest potential for share gains in data center power supplies and commands a higher valuation ceiling.

  Risks

  Slowing industrial demand, competitive pressure eroding market share, delayed product iterations.

• ON Semiconductor (ON.US)

  Beneficiary: SiC business regaining traction amid 800V transition, with differentiated advantages in vertical GaN technologies.

  Strengths

  Leading SiC and vertical GaN technologies, internal manufacturing ratio around 65%, increased exposure to data center power supplies.

  Weaknesses

  Over 50% of revenue comes from automotive market, where mixed demand suppresses gross margins; inventory risks in distribution channels.

  Comparison

  Compared to peers, ON excels in SiC and high-voltage applications but faces more pronounced challenges from automotive cycles.

  Risks

  Significant volatility in automotive production, slower-than-expected M&A integration, inventory corrections in distribution channels.

• Monolithic Power Systems (MPWR.US)

  Beneficiary: Continuously gaining market share in enterprise data and communications markets, leading in vertical power modules.

  Strengths

  Dominant position in GPU VRM market, advanced vertical power delivery technologies.

  Weaknesses

  No internal manufacturing capability (0%), reliant on foundry partners.

  Comparison

  Technologically ahead in high-performance computing power domains, yet less flexible in manufacturing compared to IDM models.

  Risks

  Intensifying competition, concentration risk among key customers.

• Amphenol (APH.US)

  Beneficiary: Increased complexity and value of power interconnect and distribution components brought by 800V transition.

  Strengths

  Broad product lineup addressing interconnection challenges posed by high voltage and density.

• TE Connectivity (TEL.US)

  Beneficiary: Growing power interconnect content in data center networks, with energy business benefiting from grid reinforcement.

  Strengths

  Power interconnect accounts for ~25% of data network revenue, with 800V transition boosting content by over 30%.

Key data

• TXN Target Price$345Raised from $280, based on 30x 2028E EPS
• ON Target Price$120Raised from $100, based on 20x 2028E EPS
• Data Center Analog Chip TAM Growth Rate~30% CAGRFrom 2025 to 2030, expanding from $9B to $35B
• GPU Power Delivery Market TAM Growth Rate>70% CAGRFrom 2025 to 2028, expanding from $2B to $12B
• 2026E Data Center Analog Sales Growth Rate~86% YoYFrom ~$9B in 2025 to ~$17B in 2026
• Mature Node Utilization Rate~80%Approaching the optimal range of 85–90%
• TXN Internal Manufacturing Ratio~85%Industry-leading, conducive to margin expansion
• ON Internal Manufacturing Ratio~65%Relatively high, aiding gross margin recovery

Impact & implications

For the industry, the 800V DC transition represents not only a technological upgrade but also a reshaping of analog chip value chains, benefiting leading firms equipped with high-voltage GaN/SiC technologies and robust internal manufacturing capabilities. For TXN, gaining market share in data center power supplies will drive valuation repositioning, potentially commanding higher PE multiples as its data center revenue share grows. For ON, despite short-term pressures from the automotive market, the resurgence of data center business and breakthroughs in SiC/vertical GaN technologies could serve as fresh catalysts for stock appreciation; investors should closely watch signals released at its September analyst day. Overall, the analog chip industry appears to be in an early phase of simultaneous volume and price growth, offering attractive allocation opportunities.

Risks

• Volatility in end-market demand: Approximately 40% of TXN’s revenue comes from industrial sectors, while over 50% of ON’s revenue originates from automotive markets; downturns in either sector could adversely affect performance.
• Intensifying competition: Fierce rivalry in the analog chip market may lead to erosion of market share, resulting in pricing pressures and declining revenues.
• Inventory risks: Both companies sell a substantial portion of products through distributors; inventory corrections in distribution channels could introduce downside risks.
• Macroeconomic headwinds: Global economic weakness may dampen overall semiconductor demand.
• Risk of technological obsolescence: Failure to promptly develop new products meeting evolving customer needs—such as TXN’s relatively low R&D spending—could render existing offerings outdated.
• M&A integration risks: If ON fails to realize the profit/EPS enhancements promised by recent acquisitions or sees profit margins decline in the Sanyo Semi division, earnings forecasts could suffer.

What to watch

• ON Semiconductor’s analyst day on September 16: Focus on opportunities in data center revenue, new momentum in SiC business, and progress in vertical GaN technologies.
• Changes in analog chip industry utilization rates: Whether they continue to rebound toward the optimal range of 85–90%.
• Progress in deploying 800V data center architectures: Particularly early adoption of ±400V HVDC sidecar designs and long-term evolution of SST architecture.
• Sustainability of industry-wide price hikes: Assess the effectiveness of major manufacturers’ (Infineon, TXN, NXP, etc.) price increase initiatives and their contribution to gross margins.
• Rate of AI data center deployment: Whether it aligns with the projected ~19% CAGR, directly impacting the pace of analog semiconductor TAM expansion.