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Barclays Forecasts AI Impact as Earnings Approach for ASML, STMicro, Infineon, and More

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The Tricky Quarter Ahead for European Semiconductor Stocks

Barclays Cautions on Volatile Earnings Season

According to Barclays, European semiconductor stocks are about to face a tricky quarter due to a volatile earnings season. While the interest in artificial intelligence has caused a surge in stock prices for companies in the semiconductor sector, Barclays sees limited benefit to earnings estimates in 2023 and 2024 from the hype surrounding chip stocks. The investment bank states that while the current quarter may not drastically alter the medium-term outlook for the sector, it could raise further questions about the next 12-18 months. Barclays analysts expect the excitement around AI to continue, but they anticipate limited positive revisions to forecasts in the second quarter. Feedback from Asia channel checks suggests that there is no visibility on a rebound in the second half of the year, and China's recovery remains elusive.

ASML: Cautious Stance and Extreme Ultraviolet Focus

For ASML, Barclays has a relatively cautious stance. The analysts believe that the primary focus for investors in the upcoming quarter should be the number of Extreme Ultraviolet (EUV) bookings and ASML's progress toward securing more orders for 2024. EUV is a microchip production technology used by companies like TSMC and Samsung to manufacture advanced semiconductor chips. Although Barclays increased its 2024 revenue estimate by 1% due to higher EUV prices, the bank remains cautious. Feedback from analysts' research and data-gathering trip to Asia suggests limited chances of increased spending on wafer fabrication equipment in 2024.

Nokia: Challenging Outlook and Tough Mobile Market

Barclays highlights a challenging outlook for Nokia in the next quarter. The bank points out issues such as a slowdown following a solid first quarter and a tough mobile market. The analysts do not foresee any reason telco operators will be increasing network investments in the coming year. Despite this, the bank's analysts believe Nokia has potential upside of over 35%, the third highest on its list.

ASM International: Easing Supply Chain Challenges

Barclays expects ASM International to meet the higher end of its second-quarter guidance, thanks to easing supply chain challenges. However, the bank's analysts warn that the company's third-quarter guidance could indicate a more than 10% decline. ASM International produces the tools required for chip manufacturing, similar to its former-subsidiary ASML. The analysts also note that ASM is expected to post a recovery in the fourth quarter, aligning with the bank's cautious outlook for chip equipment spending in 2024.

STMicro: Robust Quarter Driven by Auto and Industrial Sectors

STMicroelectronics is expected to report another robust quarter, primarily driven by continuous growth in the auto and industrial sectors, according to Barclays. The bank remains bullish about the auto segment's potential for further expansion, given STMicro's unique position in power semiconductors. Barclays' analysts believe the stock has potential upside of 37.3%, the second-highest on their list.

BE Semi: Opportunity for Vision Explanation

Barclays sees the upcoming quarter as an opportunity for Besi management to explain their vision around smartphone hybrid bonding adoption. Hybrid bonding enables fast communication between microchips and other electronic components. The analysts believe that the markets have mispriced the stock in the medium term. They are conflicted as they see consensus too low in 2023 but too high in 2024. The analysts expect the rebound to be gradual and anticipate much slower adoption of hybrid bonding in 2024, even though they are bullish on the long-term opportunity.

Infineon: Positive Outlook and Potential Acquisitions

Barclays is relatively positive on Infineon, having raised its guidance twice this year. The bank's analysts are optimistic about the company's revenue exposure and anticipate a strong quarter driven by the auto sector. They also await to see what potential acquisitions the company could target. Infineon's CFO has talked about acquisitions worth between 1 billion euros-3 billion euros ($1.12 billion-$3.37 billion). Barclays puts Infineon's upside potential at 40%, the highest on its list of chip stocks.

Navigating the Tricky Quarter for European Semiconductor Stocks

The volatile earnings season and uncertain outlook for European semiconductor stocks, as highlighted by Barclays, present both challenges and opportunities for new businesses in the industry. While the hype around artificial intelligence has sparked a surge in stock prices for semiconductor companies, it may not translate into significant earnings benefits in the medium term. This cautionary note from Barclays serves as a reminder to new businesses that the current quarter's performance may raise questions about the sector's future prospects.

For new businesses focusing on semiconductor manufacturing technologies like ASML and ASM International, it is crucial to closely monitor the progress of Extreme Ultraviolet (EUV) technology. As companies such as TSMC and Samsung rely on EUV for advanced chip manufacturing, the number of EUV bookings and prospects for securing orders in 2024 will be key indicators for investors. However, limited chances of increased spending on wafer fabrication equipment in 2024, as suggested by Barclays, must be taken into account when developing business strategies.

In the tough mobile market, Nokia faces a challenging outlook. Telco operators are unlikely to increase network investments in the coming year, posing additional hurdles for the company. However, the potential upside highlighted by Barclays provides a glimpse of hope for new businesses looking to collaborate or enter partnerships with Nokia.

The robust performance of STMicroelectronics, mainly driven by growth in the auto and industrial sectors, presents an attractive opportunity for new businesses operating within these domains. Specifically, the auto segment's potential for further expansion and STMicro's unique position in power semiconductors make it an appealing area for new businesses to explore.

For businesses related to chip manufacturing tools and technologies, such as ASM International, addressing supply chain challenges and effectively managing future guidance will be crucial. Being aware of the cautious outlook for chip equipment spending in 2024 will enable new businesses to plan accordingly and adapt their strategies.

Lastly, Infineon's positive outlook, driven by increased revenue exposure and potential acquisitions, presents an exciting opportunity for new businesses. With the company actively considering significant acquisitions, new businesses can explore potential collaborations or synergies that align with Infineon's growth strategy.

In summary, while the European semiconductor sector faces a challenging quarter ahead, new businesses should carefully evaluate the insights and cautions from Barclays. By monitoring industry trends, seizing opportunities in high-growth segments, and partnering with established players, new businesses can strategically position themselves in this ever-evolving landscape.

Article First Published at: https://www.cnbc.com/2023/07/18/asml-stmicro-infineon-nokia-chip-stock-earnings-preview-from-barclays.html

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