Infineon Technologies AG (IFX) - Comprehensive analysis
Narrow-moat Infineon Technologies is among our top picks in the technology sector. Our fair value estimate of EUR 43 provides an attractive margin of safety for long-term, patient investors. We remain optimistic about the long-term secular tailwinds in the automotive market, as Infineon is poised to benefit from increased chip content per vehicle, particularly in electric vehicles (EVs). Additionally, we appreciate Infineon’s green industrial power business and its involvement in renewable energy.
However, we do observe some warning signs in the broader EV market, including tariffs, excess inventory, competitive pricing among original equipment manufacturers, and potentially slower growth than anticipated. Despite Infineon’s leadership in power semiconductors for EVs, we expect chip content per vehicle to continue rising over time. We believe that these near-term risks are already reflected in current market prices, and we see potential rewards for investors willing to navigate tariff negotiations and the current cyclical downturn in the semiconductor sector.
In the long term, we are not overly concerned about the expansion of trailing-edge chip manufacturing capacity in China, as domestic chipmakers may attempt to displace companies like Infineon. We believe that Infineon’s diverse product portfolio and the high switching costs for customers will help the company maintain its relevance in the Chinese market and likely in most other global markets as well.
Furthermore, we are not particularly worried about Infineon's significant expansion plans in the silicon carbide (SiC) semiconductor market. Even if overcapacity occurs, we anticipate that Infineon will emerge as a leader in automotive and industrial SiC applications, capable of efficiently utilizing its facilities.
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