Semiconductors: Time to talk cycle again, part V: The outlook remains strong for Auto semis.

The last 18 months have been hectic in the semiconductor space, with a combination of strong secular and cyclical shifts. We focused a lot of our research in the first half of the year on secular topics, and we felt it was time in the second half to look at the cycle again. A core element of our semiconductor initiation, 3 years ago, was that supply concentration combined with end-market diversification would reduce the magnitude of cycles. This played out fairly well so far, but we also defended that cyclicality would not go away.

Today, we see evident signs that cyclical moving parts are at play: supply constraints driving double ordering and inventory hoarding, revenue growth rates largely exceeding the most optimistic secular trends one could anticipate, record-high equipment spending, raising prices, etc. The least we can say is that the picture is complex, and there is no easy cycle call to be made. As always, the devil is in the details, and we need to review the situation segment by segment. We published our thoughts on the PC, Datacenter, Smartphones and Semicap in earlier instalments of this series (see links on the front page of today’s piece.)

Today, we publish our view on Automotive. The situation is complex, resulting from a 3-year-long unusual chain of events, but in sum, we are convinced the near-term outlook is strong, and we are high conviction buyers of Infineon as a result. The company is well positioned to beat on revenues and margins in the next 12 months. Wolfspeed isn’t an investment opportunity to consider on a one-year horizon only, but the weakness in the stock this year makes a great entry point to play the 3-5 year outlook, just ahead of the ramp of the first 200mm wafer fab in the world.