Analyst Note – Morgan Stanley
In a note dated Tuesday, Morgan Stanley analyst Lee Simpson reiterated a constructive view on the semiconductor sector, citing strong artificial‑intelligence demand and a broadening recovery cycle. However, he warned that the DRAM memory cycle is approaching a late‑cycle inflection and that valuation dispersion among European chip makers is widening, prompting the bank to become more selective.
The firm upgraded Synopsys Inc. to an Overweight rating, moved Infineon Technologies AG to Equal Weight, and maintained an Overweight rating on ASML Holding NV while reducing its price target from €1,930 to €1,700. The target for Infineon was cut from €81 to €65, and the target for BE Semiconductor Industries (BESI) was lowered from €260 to €220. These adjustments reflect concerns over near‑term upside, especially for Infineon, and overhangs for ASML related to China, capacity constraints, and margin pressures.
Simpson highlighted that first‑half industry data have been stronger‑than‑expected, indicating firmer pricing and improving demand, which supports the sector’s fundamentals. Nonetheless, he noted that DRAM pricing appears close to a peak and expects the memory cycle to turn late in the fourth quarter.
The coverage of European semiconductor stocks has been volatile, having risen roughly 70 % year‑to‑date before retreating about 60 % from June peaks. Despite the pullback, Simpson observed that semiconductors remain among the most‑owned sectors, suggesting that the recent decline may present attractive entry points for investors.
Potential risks to the outlook through year‑end include a possible shortfall in data‑center build‑out, a tougher macroeconomic backdrop, a shift in the debate over large‑language‑model profitability from growth to returns, and potential delays to the 800‑volt vehicle architecture.
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