UBS downgrades Infineon to "Neutral," lowers target price to €45 due to AI and Chinese market risks

Investing.com — UBS has downgraded Infineon Technologies AG from “Buy” to “Neutral” and lowered its 12-month target price from €47 to €45, citing limited upside in the German chipmaker’s AI business, worsening Chinese auto market, and delayed profit margin recovery.

Infineon’s stock closed at €40.26 on Friday, down 4.8% for the day, 16% below the intraday peak of €48.23 on February 26, which was the highest since March 2022.

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The stock has more than doubled from its intraday low of €23.17 on April 7, 2025, but UBS believes this rally has ended.

UBS estimates that Infineon’s guidance of €1.5 billion in AI revenue for fiscal 2026 and €2.5 billion for fiscal 2027 implies capacity increases of approximately 45 GW and 41 GW, respectively, while the market is only growing by 15-25 GW annually.

“We are seeing signs that companies are starting to worry about how much demand is real versus how much is repeat orders driven by capacity concerns,” said Monolithic Power in its recent earnings, citing this dynamic as evidence of potential overordering across the sector.

China accounts for about 30% of Infineon’s total revenue in fiscal 2025, estimated to represent 43% of its automotive revenue.

UBS forecasts that Infineon’s automotive revenue in China will decline 7% year-over-year in fiscal 2026 and 2027.

In January 2026, China’s domestic passenger vehicle wholesale volume fell 19% year-over-year, and retail sales dropped 14%, reaching their lowest levels since 2023.

Chinese chip manufacturers have intensified pressure, with quarterly revenue growth in China exceeding that of existing competitors since Q1 2023, averaging 16% per quarter.

According to Gartner data cited by UBS, Chinese manufacturers accounted for 7.4% of global automotive power discrete device revenue in 2024, up from 1.8% in 2020.

UBS forecasts that the group’s adjusted gross margin will decline from 48.2% in fiscal 2025 to 46% in 2028, with AI data center segment margins compressing from 55% to 48% over the same period.

The broker has cut its EPS estimates for 2028-2030 by 3-5%, expecting EPS of €1.79 in fiscal 2026, €2.55 in fiscal 2027, and €2.92 in fiscal 2028.

The €45 target price is based on a DCF valuation, assuming a WACC of 9% and a terminal growth rate of 2%, implying an optimistic scenario of €60 and a pessimistic scenario of €30.

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