Infineon Stock Is Dodging the Semiconductor Collapse. Chips for Cars Are Key.
Chip stocks have had a tough few weeks due to factors including weakening PC demand and new U.S. restrictions on semiconductor exports to China.
It’s easy to tar all semiconductor makers with the same brush. It also creates potential buying opportunities. That’s where German chip maker Infineon Technologies (ticker: IFX.Germany) comes in.
The Munich-based semiconductor giant designs, manufactures, and supplies chips used in autos, industrial machines, and consumer electronics. What sets the company apart is its exposure to autos, accounting for close to 50% of revenue, and especially electric vehicles.
By the same token, Infineon is less exposed to the falling demand for consumer electronics, which has hit other sector heavyweights such as Advanced Micro Devices (AMD).
Infineon was the global leader in the automotive semiconductor market in 2021, ahead of NXP Semiconductors (NXOU), according to the company’s data. The chip maker’s xEV business, which provides technology for all types of EVs including plug-in hybrids, topped revenue of 1 billion euros ($1 billion) in full-year fiscal 2022 for the first time.
Infineon announced the milestone earlier this month ahead of full-year results due to be released on Nov. 15. Infineon sees the EV chip market growing at a compound annual rate of 27%, with the company outgrowing the market.
“We believe accelerating EV demand can drive Infineon’s earnings growth outperformance,” UBS analyst François-Xavier Bouvignies said in a note earlier this month. He has a Buy rating on the stock and a price target of €40.
Global light-vehicle production is expected to grow in 2023 and 2024, according to S&P Global forecasts, which should boost an industry leader like Infineon.
It isn’t necessarily the auto-production increases that the company sees as a key growth driver, but rather the increasing number of chips needed per vehicle in feature-rich cars these days. The company sees itself as a “key enabler of the future car” in a growth market, it said in an analyst call.
The automotive unit remains Infineon’s most important long-term growth driver, Warburg Research analyst Malte Schaumann says. However, he now sees the division having a positive impact in the near term, too, due to “content growth, positive pricing effects, and probably production growth from levels in 2023.”
Analysts also see revenue growth in Infineon’s industrial power control and power & sensor systems units this year. Total revenue is expected to rise to €14 billion in the fiscal year ending in September, from €11.1 billion last year, according to estimates. Revenue in 2023 could hit close to €15 billion.
Infineon’s shares have fallen 39.2% in 2022 to a recent €24.77. It’s a similar story, if not worse, for its European and American competitors. Chip maker AMS (AMS.Austria) has slumped 64% over the same period, while AMD is down 60%. As a result, Infineon shares are historically cheap. The stock currently trades at 12.4 times forward 12-month earnings, considerably lower than its five-year average of 21.7, according to FactSet.
After a tumultuous few months, the sector’s bottom is “not that far off,” according to analysts at French financial-services group Oddo BHF, and could come toward the end of the first quarter of 2023. Oddo analyst Stephane Houri has a Buy rating, with a price target of €30.
The stock is popular among analysts, with 87% of those covering the company rating them Buy, according to FactSet. Their average target price of €37.96 implies a 60% upside to Tuesday’s price.
As the chips are down, Infineon stock may now be worth a look.