Morgan Stanley has shifted to a more selective stance on European semiconductor equities, keeping a positive view on the sector overall but altering several ratings and price targets as memory markets approach a potential turning point and valuations diverge across names.
In a note issued Tuesday, analyst Lee Simpson reiterated the bank's broad constructive outlook on the industry while flagging reasons for a more cautious stock-by-stock approach.
"We remain constructive on semis, underpinned by strong AI demand and a broadening cycle recovery," Simpson wrote. He added: "we turn more selective," citing DRAM's approach to a late-cycle inflection and widening valuation dispersion.
As part of the review, Morgan Stanley upgraded Synopsys to Overweight, shifted Infineon to Equal Weight and trimmed price targets for ASML and BE Semiconductor.
The bank maintained an Overweight rating on ASML but cut its target to c1,700 from c1,930, noting near-term overhangs tied to China, capacity and margins. Infineon's target was lowered to c65 from c81 on what Morgan Stanley described as limited near-term upside, and BE Semiconductor's target was reduced to c220 from c260.
Simpson said the industry's fundamentals still look supportive. He pointed to stronger-than-expected first-half industry data that suggest a broadening recovery, firmer pricing and improving demand across the supply chain.
However, he described memory as the "key wrinkle," observing that DRAM pricing appears close to a peak and that the memory cycle is expected to move into a late-cycle phase by the fourth quarter.
The coverage group has seen substantial volatility this year, rising roughly 70% year-to-date before giving back around 60% from its June highs. Despite that pullback, Morgan Stanley noted semiconductor stocks remain among the most-held sectors and suggested the recent decline could present attractive buying opportunities for some investors.
Intraday moves cited in the coverage note included IFXGn -4.36%, ASML +0.64%, BESI -3.75% and SNPS +1.18%.
Context for investors
- Sector-level optimism is anchored in AI-driven demand and signs of a wider industry recovery.
- Memory markets - specifically DRAM - are nearing a late-cycle phase, which may reduce near-term upside for some suppliers.
- Valuation dispersion is expanding, prompting the bank to be more selective at the company level rather than across the sector indiscriminately.