Morgan Stanley upgrades Synopsys as it turns selective on chip stocks

Investing.com -- Morgan Stanley has upgraded Synopsys to Overweight and turned more selective on European semiconductor stocks, citing widening valuation dispersion and signs that the memory cycle is nearing a late-cycle turn.

Analyst Lee Simpson said the firm remains positive on the sector overall. "We remain constructive on semis, underpinned by strong AI demand and a broadening cycle recovery," he wrote, though he added that with memory approaching an inflection, "we turn more selective."

On Synopsys, Simpson pointed to an attractive entry point after a recent de-rating, greater confidence in synergies from its Ansys acquisition and a recovery in design intellectual property, along with an underappreciated opportunity from so-called physical AI.

He kept his $500 price target on the stock, based on a forward price-to-earnings multiple of 30 to 35 times.

The bank moved Infineon to Equal Weight from Overweight, saying that while the structural data center opportunity remains compelling, it sees limited near-term upside and no clear catalyst. It cut the German chipmaker's price target to €65 from €81.

Morgan Stanley retained its overweight rating on ASML but trimmed its target to €1,700 from €1,930, citing near-term overhangs around China, capacity and margins. It also lowered its target on Besi to €220 from €260, expecting hybrid bonding for high-bandwidth memory to feature later and at lower volumes.

The sector has been volatile, with Morgan Stanley's coverage up about 70% for the year before retreating around 60% from its June peaks. Simpson flagged four risks into year-end, including a possible shortfall in data center buildout and a tougher macro backdrop.

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