Jefferies upgrades STMicroelectronics, Infineon, Melexis as next chip cycle starts
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STMicroelectronics (NYSE:STM) and Infineon Technologies (OTCQX:IFNNY) jumped more than 3% on Wednesday as investment firm Jefferies upgraded the European semiconductor companies, noting the next industry "upcycle" is here.
Janardan Menon raised the firm's rating on STMicro (STM), Infineon (OTCQX:IFNNY) and Melexis - which does not trade in the U.S. - to hold from underperform, while also raising the per-share price targets to â¬40, â¬46 and â¬92, respectively. 
"While it is normal to be pessimistic on end-demand at the bottom of the cycle, we predict growth to positively surprise through 2024 and 2025 on the back of structural drivers including AI, cloud computing, edge computing, IoT, EVs, ADAS, renewable energy and VR/AR, amongst others," Menon wrote in an investor note, adding that he expects the industry to expand to more than $1T over the next 8 or 9 years.
For companies outside the automotive or industrial spaces, Menon expects earnings per share to grow between 35% and 180% between 2023 and 2025. 
For those inside the automotive or industrial spaces, like STMicro (STM), Infineon (OTCQX:IFNNY) and Melexis, they should also benefit from a re-rating in the chip sector, which is likely to "compensate for earnings downgrades."
In addition, Menon raised his per-share price targets on ASML (NASDAQ:ASML), ASM, Aixtron and Soitech, with ASML and ASM likely to benefit from artificial intelligence being a "major driver of advanced logic wafer demand."
Analysts are immensely bullish on STMicroelectronics (STM). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates STM a STRONG BUY.
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