BofA cuts price targets on analog and auto chip stocks on choppy macro environment

Bank of America Securities has significantly lowered price targets for several analog and automotive semiconductor stocks, including Texas Instruments and Onsemi, citing a weaker-than-expected recovery path, intensified competition, and a volatile macro backdrop. The firm revised down its 2025-2027 auto semiconductor market estimates by up to 2.2%, projecting a 7% year-on-year sales decline for next year, influenced by warnings from companies like Infineon and BYD's reduced sales targets. Despite pockets of resilience from some vendors, BofA maintains a cautious outlook, anticipating a gradual recovery and favoring names with robust free cash flow visibility or lower relative multiples.

Analysis

Bank of America Securities has adopted a more cautious stance on the analog and automotive semiconductor sector, evidenced by price target reductions for key players including Texas Instruments (to $208 from $218), Onsemi (to $52 from $56), and Allegro Microsystems (to $38 from $45). The revised outlook is predicated on a recovery path that is proving to be slower and more 'lumpy' than previously anticipated, with what was expected to be a strong upturn now appearing closer to a seasonal trend. This view is supported by several factors, including intensified competition in China, tariff uncertainties, and specific corporate warnings such as Infineon's on uncertain auto demand and BYD's 16% reduction in its 2025 sales target. Consequently, BofA has lowered its auto semiconductor market estimates for 2025–2027 by up to 2.2%, now projecting a 7% year-on-year sales decline for 2025. The broader industrial market also shows signs of softness, with the U.S. ISM PMI remaining in contraction at 48.7. Despite this bearish macro view, there are pockets of resilience; Analog Devices noted a strong reacceleration in industrial sales, Microchip reported better August bookings, and post-earnings consensus estimates for most diversified vendors actually rose by about 1% for 2025-27. This divergence has led BofA to tactically shift its preference toward companies with superior free cash flow visibility like Analog Devices and Microchip, or those at lower relative multiples such as NXP.

Key Decisions for Investors

• Investors should re-evaluate holdings in semiconductor companies with high exposure to the automotive sector, such as Onsemi and Allegro Microsystems, given the specific warnings on slowing demand, increased competition, and downward revisions to market forecasts.
• Consider shifting focus towards semiconductor names exhibiting stronger fundamentals, such as Analog Devices and Microchip, which BofA favors for their free cash flow visibility, or NXP, noted for its lower relative valuation.
• Monitor the divergence between BofA's cautious analyst note and the slightly rising post-earnings consensus estimates, as this indicates market uncertainty about the recovery's pace and presents a key factor to watch in upcoming quarters.
• Look for opportunities in non-automotive segments of the semiconductor market, particularly industrial, automation, and aerospace, where companies like Texas Instruments and Analog Devices are reporting more resilient demand and recovery.