According to Morningstar analyst Brian Colello, investors should switch their focus to the conventional semiconductor makers as the AI chips stocks now look significantly overvalued.
Two names in particular, Infineon Technologies AG (ETR: IFX) and STMicroelectronics NV (EPA: STMPA) could return as much as 70% over the next twelve months, he told clients in a note on Monday.
Let’s dive deeper and examine what each of these has in store for investors.
The bull case for Infineon stock
Infineon Technologies is the largest semiconductor manufacturer based out of Germany.
Brian Colello recommends loading up on its shares at current levels as they could benefit from a continued global shift to electric vehicles.
“Infineon should be well-positioned to aid in automotive powertrain development over the next decade, including the adoption of silicon carbide-based semis,” he said in a research note today.
Morningstar sees an upside in Infineon stock that is also listed in the United States to €50 ($55), which indicates a 70% potential upside from here even though the Neubiberg-headquartered firm reported a rather huge 52% year-on-year decline in its third-quarter profit to €403 million in August.
The semiconductor maker also took a 9.0% hit to its revenue in its latest reported quarter.
However, the investment firm is perhaps focusing more on the reiterated full-year guidance and a 1.13% dividend yield, which makes up another good reason to have it in your portfolio.
Infineon also recently announced plans to lower its global headcount by about 1,400 to cut costs.
The bull case for STMicroelectronics stock
Morningstar recommends investing in STMicroelectronics stock as well for similar reasons.
The multinational based out of Geneva, Switzerland has teamed up with several key players in the auto industry, including the US-based electric vehicles giant Tesla Inc.
Brian Colello is convinced that the fears of competition from Chinese manufacturers and oversupply of silicon carbide semiconductors are overblown.
A 40% year-to-date decline in the company’s NYSE listed shares, therefore, is not justified, as per his research note.
“We like STMicroelectronics’ exposure to the secular tailwinds around rising chip content per vehicle,” the analyst added. He sees upside in STM to $52 which actually translates to a whopping 90% upside from here.
And it’s not like STMicroelectronics fails to offer any exposure to the artificial intelligence frenzy. Earlier this month, it partnered with Qualcomm Technologies on the next-gen IoT solutions developed by edge AI.
STMicroelectronics stock does not, however, pay a dividend in writing.
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