BofA Names Preferred Picks Among European Chipmakers Ahead of Earnings

 Ahead of earnings, BofA Securities prefers STMicroelectronics NV (EPA:STMPA), Infineon (ETR:IFXGn), Tower Semiconductor (TASE:TSEM) and Nordic Semiconductor (OL:NOD) over Melexis. 

For the first three, the broker expects modest beats and raises, with limited upside to gross margins and slight upside to revenues coming from data center/AI as well as Autos and Industrial. A common thread across the group is pricing. 

BofA notes that better pricing for large OEMs, meaning flat to up 5% versus the traditional 1-5% price decline, is already expected, so any upside beyond that would come as a positive surprise.

STMicroelectronics is expected to deliver a modest beat and raise, with data center as the main storyline. BofA thinks the market may expect STM to lift its DC revenue guide to $3 billion for CY27, in line with BofA’s own estimate, driven by Optical. 

The harder question is margins. BofA believes investors need confidence that gross margins can move above 40% next year, which could come from mix, since BofA believes optical gross margins are above 50%, and/or from pricing for large OEMs.

Infineon also looks set for a modest beat and raise, and here the AI angle is about power. BofA thinks the market may expect IFX to guide combined FY27E AI and server CPU power revenues of €3.5-4 billion, while BofA’s own estimate of €4.1 billion sits above the top of that range. Pricing is where the picture becomes more nuanced. 

BofA expects the Autos business, which makes up 75% of the ATV division, to pass on 5-10% inflation from foundries. 

The Power business, the other 25% of ATV, may find it harder. BofA believes IFX could struggle to raise prices for tier-1 customers by more than 5%, given oversupply in IGBTs and political sensitivities around the Dresden fab’s subsidies.

Tower Semiconductor is grouped with STM and IFX in expecting a modest beat and raise, reflecting the limited gross margin upside and slight revenue upside described above. The note offers no further company-specific detail on TSEM, so nothing beyond that is stated here.

Nordic Semiconductor is the one name with an explicit rating in the note: BofA reiterates its Buy. The thesis rests on continued EBITDA improvement, driven by operational leverage and mix. The recent trend supports it, with EBITDA margin rising to 18.1% in the third quarter from 15.4% in the second.

The contrast with Melexis explains why these four are favored. BofA maintains an “underperform” rating on Melexis because of its greater reliance on global SAAR units, which have recently been affected by weaker demand in China and Europe, and because its auto growth has continued to lag peers.