ON Semiconductor's (ON) acquisition of Synaptics (SYNA) is a strategic pairing of ON's power and sensing franchise with Synaptics' edge-AI processors and WiFi, Bluetooth and GPS connectivity, forming a combined entity likely to pursue physical AI opportunities, UBS Securities said in a note emailed Monday.

UBS said it does not see the acquisition as a major game changer and expects it to be initially dilutive, but still leans positive on the deal. The brokerage added that it had expected ON's mergers and acquisitions strategy to push deeper into the data center or autos vertical.

However, the Synaptics deal still makes sense because there is little to no overlap, and it expands ON's intelligent power and sensing franchise in the autos, industrial, and data center markets to the edge for physical AI, the brokerage added.

The deal could be marginally accretive to UBS' 2029 EPS estimate, excluding revenue synergies, it said.

UBS kept a neutral rating on ON Semiconductor with a price target of $95.

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