A steep selloff has European semiconductor stocks trading at more attractive prices, but US President Donald Trump’s tariffs and growing fears of recession mean the profit outlook for these companies is highly uncertain.
Semiconductor stocks, which include both chipmakers like STMicroelectroics STMPA or Infineon IFX, and equipment makers like ASML ASML, are vulnerable to Trump’s trade war even beyond direct tariffs on chips made outside the United States.
With global supply chains and a high, fixed cost structures, semiconductor stock results are very sensitive to economic slowdowns, even if the growth of artificial intelligence technologies might soften some of the industry’s cyclical nature.
Since the beginning of the year, Infineon, STMicroelectronics, ASML share prices have declined 3%, 16% and 13% respectively while the overall industry index, the Morningstar Global Semiconductors Index, has lost 23% in euros. The Morningstar Global Markets global stock index has dropped 11% in euros over the same period.
Recession Risk Is Partially Priced in
Although semiconductor stocks have fallen, analysts and investors say those lower prices only partially factor in the risk of an economic recession.
“I think that the current valuation of European semiconductor manufacturers does not fully incorporate such a risk at present,” says Arnaud Brossard, manager at Lazard Frères Gestion, whose Lazard Innovation fund is a shareholder in several companies in the sector.
‘The correction is due to the anticipation of a decline in profits and/or a compression of multiples, rather than a downward revision of profit estimates to date,’ explains Brian Colello, equity analyst specializing in the industry at Morningstar. “I haven’t seen many chipmakers provide an earnings warning on Q1”, he added.
According to FactSet, earnings per share estimates for Infineon and ASML have been revised up 3,5% and 24,9% respectively since the end of 2024, while they have been revised down 57% for STMicroelectronics.
But that doesn’t mean the profit outlook is safe. “Earnings per share estimates could be revised downward in the coming weeks as second-quarter results are released,” says Javier Correonero, equity analyst for Morningstar.
“For automotive/industrial and other mature chips the consensus is that a recovery in earnings is expected in t2H 2025, but I would say there is a fair chance this recovery ends up delayed,” he adds.
Semiconductor Equipment Makers: More Resilient?
Moreover, in the opinion of analysts and managers, investors should make a distinction between equipment manufacturers and chip manufacturers. “ASML, ASMI and BESI do not have a direct American equivalent at present, so installing their machines in factories that are being or will be built in the United States will probably be possible despite possible customs duties”, Brossard explains.
Limited competition is not the case for chipmakers. STMicroelectronics and Infineon are in direct competition and in competition with Texas Instruments, Microchip in the US and Renesas in Japan. Their results may also be more sensitive to higher tariffs, according to analysts and investors.
“The risk to the industry cycle is increasing with an economic context that seems to be deteriorating, which is less favorable to chip manufacturers than to equipment manufacturers,” says Frederic Guignard, a fund manager at Ecofi Gestion.
Equipment manufacturers “benefit from more favorable growth prospects than chip manufacturers, thanks in particular to the development of AI or solutions related to the energy transition”, he adds.
Are Semiconductor Stocks Attractive?
In terms of valuation multiples, the shares of listed companies in Europe — Infineon, STMicroelectronics, ASML, ASM International ASM, BE Semiconductor BESI, or Soitec SOI—are apparently more attractive than they were at the beginning of the year.
Their price-to-fair-value ratio, which is based on the fair value estimate determined by Morningstar analysts, shows an average discount of 37% as of April 11, compared with a discount of 18% as of Dec. 31, 2024.
In view of the fall in the stock market multiples, the six European semiconductor stocks are now undervalued, with shares rated 4 or 5 stars by Morningstar.
Analysts at Morningstar say that for investors who can weather market volatility and have a long-term investment horizon, Infineon and Melexis are their top picks among chipmakers, while they tend to prefer ASM and BE Semiconductor among equipment manufacturers.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
