Investing.com - Morgan Stanley retains a positive stance on Infineon (OTC:IFNNY), but cuts its target price on the German semiconductor on the back of the difficult current market conditions.
With the European PMI indicator sitting firmly below 50 for over two years, this has had a dampening effect on the typical cyclical uptick in Infineon’s share performance, analysts at the US bank said, in a note dated Sept. 20.
“With only thin signs of industrial recovery, the argument for upside risk in earnings falls on automotive semis,” Morgan Stanley added. “That said, we see only weak growth at best next year. Although we see a valuation reflecting trough, we still expect challenges in automotive semis near term given (i) a full channel of finished goods, (ii) mix shifting from high end vehicles to mid-range on affordability concerns and (iii) a pivot from battery electric vehicles to hybrids/ICEs in Europe.”
The bank has cut its 12-month target price on Infineon’s stock price to €37 from €45, compared with its current price of E29.53, down 4.2% on the day.
That said, Morgan Stanley maintains an “overweight” rating, as despite the weakness seen in autos and industrials the bank expects signs of an FY24 sales/margin trough with recovery through FY25.
As industrial semis come out of a cyclical trough (FY1H25), the bank sees a sales mix tilted to high-end MCUs and power semis, revealing the longer-term secular play.
“We expect new wins in autos to validate Infineon's strategy,” Morgan Stanley said. “A strong IP library augurs well for GaN longer term too. GaN deals cement power semis' prowess longer term and the emerging opportunities in AI servers add to momentum in the PSS segment (FY25+).”