Bank of America has reduced its price target for Infineon to €80 from €88, citing persistent concerns about financing for AI capital expenditure, questions around monetization of AI investments and the possibility of tighter permitting for data centers. Despite the cut, the bank maintained a Buy rating after reviewing the chipmaker's most recent guidance.
Alongside the new price target, BofA lowered its fiscal 2028 EV/EBITDA target multiple to 12 times from 13 times. The bank notes this multiple sits at the upper end of Infineon's 10-year historical EV/EBITDA range, excluding the COVID period, which spans 6.5 times to 13.0 times. Under the revised multiple, Infineon would trade at roughly 15 times fiscal 2028 EV/EBIT, a level BofA describes as broadly consistent with the company's historical median.
Infineon issued guidance that broadly aligns with consensus expectations: revenue of €20 billion, a segment result margin in the mid-20% range and approximately €4 billion in data center revenue. BofA's own projections sit modestly above company guidance, with revenue of €20.4 billion and a segment result margin of 26.5%. The bank trimmed its fiscal 2027 and 2028 earnings-per-share estimates by about 1% to account for higher interest expenses.
BofA reiterated its Buy stance on three principal grounds: leadership in AI and data center power semiconductors that should support margin improvement for the group; a re-acceleration in the automotive semiconductors business; and what the bank considers reasonable valuations.
Automotive proved the main positive surprise in Infineon's guidance. The company forecast mid-teens percentage growth in the automotive segment next year, compared with consensus at roughly 10%, even as vehicle production remains subdued and several German automakers have issued warnings. BofA interprets this outperformance as driven by stronger demand for software-defined vehicle features, microcontrollers and Ethernet, ongoing EV adoption, share gains in China and restocking activity. The bank noted that high-voltage drivetrain components will be a modest drag on margins in fiscal 2027.
In BofA's view, about five percentage points of the automotive growth come from pricing, share gains and restocking, while the remaining 10 to 11 percentage points reflect higher content per vehicle and product mix. Infineon also pointed to new design wins with a Japanese automaker and a U.S. EV original equipment manufacturer.
On profitability, Infineon guided adjusted gross margin to the mid-to-high 40% range. The company cited several tailwinds to margin expansion, including a favorable AI product mix, operating leverage, expanded savings measures and roughly 150 basis points of improvement from lower idle costs. Those positives are expected to offset higher input costs, increased R&D spending and an additional €300 million of depreciation.
BofA highlighted that Infineon currently has AI orders in excess of the company's revenue guidance, leading the bank to expect growth to remain supply constrained in the near term. Potential upside could come from a successful production ramp at the Dresden facility, increased outsourcing and stronger CPU demand. BofA also flagged multi-year long-term agreements with a cumulative value of more than €10 billion as supporting visibility for future demand.
Sector implications
- Semiconductors: valuation and margin trajectory influenced by AI and automotive content mix.
- Data centers: potential permitting constraints could affect demand visibility and monetization timelines.
- Automotive: software-defined vehicle content and EV adoption are key drivers of near-term growth.