Source: Zhitong Finance
Analysts are urging long-term investors to stay confident.
The downturn in the electric vehicle market has dragged down the stock prices of automotive chip manufacturing companies, which have limited exposure to artificial intelligence and are unable to participate in the wider rise. But analysts are urging long-term investors to stay confident.
Two leaders in the automotive chip industry$INFINEON TECHNOLOG (IFNNY.US)$und$STMicroelectronics (STM.US)$Since 2024, they have all declined by more than 18%, making it the “underdog” of European technology stocks. Listed in the US$NXP Semiconductors (NXPI.US)$und$Texas Instruments (TXN.US)$It lags behind in the Philadelphia Semiconductor Index.
There are more and more signs of weak demand for electric vehicles,$Tesla (TSLA.US)$Shockingly low sales figures are proof. Rising inventories and competition from Chinese chipmakers have fueled pessimism. The bulls were mostly undeterred, though.
“We believe they will weather this storm in the near future,” said Brian Colello, an analyst at Morningstar. He gave these two stocks a “buy” rating. “We think this is a great entry point if you're willing to hold these stocks for two to five years.”
Automotive chip stocks failed to follow the rise in the chip sector
As automakers adopt electric motors and autonomous driving features, the number of chips used in cars has increased dramatically. This growth will continue as electric vehicles become more complex. Analysts Bernstein predict that by 2031, the chip content of each car will increase from $650 in 2021 to more than $1,500.
Both Infineon and ST have expected price-earnings ratios of less than 14 times, both below the 5-year average.
In the US, NXP's expected price-earnings ratio is more than 35% lower than the Philadelphia Semiconductor Index, and the expected price-earnings ratio of Onsemi Semiconductors (ON.US) is even lower. Texas Instruments is the highest ranked company in its category.
A key risk faced by automotive chipmakers in the short term is excessive customer inventory, which has been increasing since the pandemic disrupted the global supply chain. TSMC lowered expectations for the automotive chip business on Thursday, and Bloomberg Intelligence analyst Ken Hui said Infineon may follow suit.
But Wesley Lebeau, fund manager at CPR Asset Management, said investors had anticipated that these companies might lower their performance forecasts. He said that as time goes on, the automotive chip industry will become easier to compare year over year, while the year over year comparison for advanced chip makers will become more difficult. Shares of advanced chipmakers soared due to optimism about artificial intelligence.
Lebeau said that the difference in valuation between these two types of companies gave automotive chip makers “an opportunity in the second half of this year.” “Overall, the subject of electrification in the automotive industry remains valid.”