This Company Could Become the Nvidia of AI Inference

It's no secret that spending related to artificial intelligence (AI) continues to exceed expectations, and based on hyperscalers' spending plans, it's likely to do so for years to come.

That said, the nature of AI spending will shift, with inference spending set to surpass that for data center infrastructure in a few years. That's why a stock like power semiconductor company ON Semiconductor (NASDAQ: ON) is ideally placed to be a major beneficiary. Here's why.

Inference spending will take over

To understand why, it's important to differentiate between inference spending and data center infrastructure spending. The two are obviously linked -- you can't have one without the other -- but the reality is that infrastructure spending is booming now as hyperscalers rush to build it to support growth in the future. You can think of this spending as AI's capital budget for building data centers and training models.

In comparison, inference spending (running AI models for real-world use) can be considered an ongoing operating cost. After the infrastructure is initially built out, inference will likely account for the majority of spending, above that for maintenance and growth.

But inference spending is power hungry, needs thermal management, and will inevitably scale up over time. That's great news for power semiconductor companies, including Nvidia partner ON Semiconductor.

To be clear, the company benefits from expenditures on data center infrastructure and inference, but it's the latter that will really drive its long-term profits.

ON Semiconductor is ideally placed

The company is best known for its power and sensing chips for the electric vehicle (EV) and industrial markets. They are attractive enough in their own right. And I selected the company as my top stock to buy for 2026 on the basis that its EV market would pass a point of inflection while its industrial end markets are also slowly improving. Those things happened, and the company is back on the growth track now.

However, its fast-growing data center revenue (up 30% in the first quarter, and equivalent to $250 million on $6 billion in sales in 2025) could be the key to the next stage of the company's multiyear expansion. It's an opportunity driven by the ability to provide power technology for both the new generation of data centers with Nvidia and diverse environments, including hyperscaler data centers, businesses, and edge inference. The latter means inference close to the data source, such as EVs and autonomous driving, smart manufacturing, healthcare diagnostics, and the like.

Image source: Getty Images.

Where next for ON Semiconductor

While EV and industrial automation still dominate ON Semiconductor's near-term prospects, it won't take long for the growth rates the company is achieving in its data center business to make it a major driver of growth.

CEO Hassane El-Khoury now expects the company's data center growth to "double year over year in 2026," implying about $500 million in revenue for 2026, compared to Wall Street expectations for $6.47 billion in revenue overall in 2026. At this rate, and assuming long-term demand for inference is coming, the market could be underestimating the stock's potential.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends ON Semiconductor. The Motley Fool has a disclosure policy.