- Eight consecutive days of negative price action, trading at support of price channel ahead of 4 Feb results
- Despite peer warning, industry data point to ongoing semiconductor sales growth above typical seasonality
- Potential for optimistic management outlook amid pessimistic market sentiment
Infineon has seen eight consecutive days of negative price action, one of its worst runs over the past year, on the back of: 1) automotive companies including BMW and Volkswagen this week warning on lower profit margins; and 2) the earnings miss by STMicroelectronics due to weak demand in the industrial and auto sectors. Contrary to STMicroelectonics’ warnings, industry data point to ongoing semiconductor sales growth of c.10% in November, above typical seasonality, and most semiconductor groups are performing better than typical historical patterns.
Despite the absence of material fiscal stimulus from China, which would revive demand for autos, the sector may be nearing a bottom, with most of the market weakness already reflected in stock prices. Analysts believe Infineon is better positioned than rivals to benefit from incremental power semis demand because it is working closely with major GPU players and hyperscalers, and according to recent comments by Infineon's Head of AI/PSS it offers scope for an 8-10% improvement in power efficiency. Furthermore, analysts note solid progress in AI servers, and even though the EUR500mn AI revenue guide is relatively small, it nonetheless provides a useful tailwind with upside risks should the company achieve its EUR1bn target in 2-3 years, ahead of schedule.
Infineon reports its 1Q25 results on 4 February, and we expect the debate around the pace and shape of the recovery in autos to continue, given recent comments from peers pointing to rising inventory over the past few months. Given the recent significant price declines and the market already forecasting a low double-digit drawdown in sales, we see more asymmetric risk to the upside as the company has on several occasions given a more optimistic outlook amid pessimistic market sentiment, leading to earnings moves of more than 10%.
Infineon is currently trading at the bottom of the price channel formed over the last six months, and with the stock typically mean reverting after significant drops, we look to play the upside ahead of the results. With 1M ATM IV rich at a 2YPc98, we propose Feb25 34/36 call spreads at a net cost of 1.1% of underlying. (Spot ref:31.8, Fut. 31.6). Should spot tick through our price target the strategy should return c.6x on net premium.