Investing.com -- Morgan Stanley (NYSE:MS) has upgraded Infineon (OTC:IFNNY) Technologies AG (ETR:IFXGn) to "overweight" from "equal-weight," citing improved fundamentals and a stronger-than-expected outlook for the semiconductor company.
Shares of the German company were up 4.3% at 08:25 ET (13:25 GMT).
The brokerage also raised its price target for Infineon to €40 from €30, reflecting its expectation of a cyclical recovery in key segments such as automotive and industrial semiconductors.
In a note dated Thursday, analysts at Morgan Stanley flagged Infineon’s better-than-anticipated first-quarter performance, which showed resilience in margins despite previous concerns over pricing pressure.
The semiconductor manufacturing company reported an underlying gross margin of approximately 41%, suggesting stability in pricing dynamics.
The analysts noted that Infineon’s position in the automotive semiconductor market remains strong, supported by sustained demand from electric vehicle manufacturers in China and a series of design wins in microcontrollers.
Infineon also surprised the market by raising its fiscal year 2025 guidance. Initially expected to report a slight decline in sales, the company now forecasts flat to slightly positive growth, helped in part by currency movements.
The revised outlook contrasts with more cautious forecasts from some of its competitors, reinforcing Morgan Stanley’s view that Infineon is better positioned to weather ongoing uncertainties in the sector.
One key area of strength for Infineon is its exposure to silicon carbide (SiC) technology, which is increasingly used in power electronics for electric vehicles and industrial applications.
The analysts pointed out that Infineon has been gaining market share in SiC, particularly in China, where its orders have grown despite broader macroeconomic concerns.
Additionally, the company has raised its sales guidance for power solutions used in artificial intelligence (AI) servers, with expectations of €600 million in revenue this year from that segment.
Risks remain, especially in light of possible trade tariff changes that could impact semiconductor supply chains.
Analysts believe that Infineon's inventory position has improved and that tariff adjustments would have a limited effect compared to the company's overall automotive revenue, which exceeds €8 billion.
Valuing Infineon on its expected earnings for the next fiscal year, Morgan Stanley applied a mid-to-high teens earnings multiple, leading to its revised price target.
The brokerage sees the company as one of the more attractive names in the European semiconductor space, particularly given its exposure to structural growth drivers in electric vehicles, AI, and power management.