Infineon Earnings: Still a Top Pick of Ours in Semis as Bottom Appears to Be Imminent

Narrow-moat Infineon Technologies reported decent fiscal second-quarter results amid a tough demand environment while providing investors with a soft forecast for the third quarter and reducing its guidance for fiscal 2024 (ending September). On the bright side, Infineon believes that June will be the bottom of an ongoing cyclical downturn in power semiconductors, which is commentary echoed by several peers in recent weeks. Further, Infineon disclosed its strong momentum in microcontroller revenue, which we believe is more insulated from the rise of Chinese chip development than its low- to mid-range power semiconductor business is. We believe these two factors are why the stock rose nearly 13% after the earnings report on May 7. We maintain our EUR 50/$54 fair value estimate and still view Infineon as one of our top picks in the semiconductor space, as we believe the long-term risks around its auto business and Chinese competition are more than overdone.