Investing.com -- Bernstein named Infineon (OTC:IFNNY) Technologies AG as its "Best Idea" for the fourth quarter of 2024, signaling confidence in the chip manufacturer's prospects despite recent cyclical challenges.
The firm has maintained an Outperform rating on Infineon since initiating coverage in January 2023, and its latest note underscores the company's resilience and growth potential.
Bernstein believes Infineon remains well-positioned to benefit from both secular and cyclical trends.
"We’ve named IFX our ‘Best Idea’ twice before, but the secular growth opportunities just were not enough to outweigh the cyclical overhang that investors remained leery of," they state.
Bernstein explains that Infineon is a leader in automotive semiconductors, with recent gains in its market share for microcontroller units (MCUs). Automotive applications now account for more than 50% of its revenue, focusing on high-growth areas such as electrification and advanced driver assistance systems (ADAS).
The firm also points to emerging opportunities in AI server power, which Infineon expects to generate EUR 1 billion in revenue within 2 to 3 years.
"AI server power has also emerged as a new growth driver," Bernstein observes, further enhancing the company's growth outlook.
Bernstein indicates that cyclical headwinds are transitioning into tailwinds for Infineon.
"We find evidence [that] cyclical headwinds are turning into tailwinds," the analysts state. They note that while industrial and automotive analog sales have faced corrections, company guidance suggests that automotive sales may be nearing a bottom.
Despite EPS revisions for FY24 and FY25 dropping by 31% and 26%, respectively, over the past year, Bernstein believes that Infineon's current share price does not yet reflect the anticipated improvement in conditions.
The firm maintains a target price of EUR 40, based on a P/E ratio of 18x on FY25 adjusted EPS. "Valuation looks attractive given secular growth and improving cyclical conditions," Bernstein concludes.