Morgan Stanley upgrades Synopsys and becomes more selective on European chipmakers

Morgan Stanley lifted Synopsys to Overweight and grew more selective on European chip stocks, citing wider valuation gaps and signals the memory cycle is nearing a late-stage inflection.

Analyst Lee Simpson said the bank's overall sector stance is positive. "We remain constructive on semis, underpinned by strong AI demand and a broadening cycle recovery," he wrote, adding that with memory approaching an inflection, "we turn more selective."

For Synopsys, Simpson highlighted an attractive entry point after a recent de-rating, stronger confidence in Ansys acquisition synergies, a recovery in design intellectual property, and an underappreciated opportunity from physical AI.

Simpson kept the stock's price target at $500, based on a forward P/E of 30-35 times.

Morgan Stanley downgraded Infineon to Equal Weight from Overweight, saying the structural data-center opportunity remains compelling but near-term upside is limited and no clear catalyst is visible. The bank cut its target price for the German chipmaker to €65 from €81.

Morgan Stanley kept its Overweight rating on ASML but reduced its target price to €1,700 from €1,930, citing near-term overhangs around China, capacity, and margins. It also lowered Besi's target price to €220 from €260, anticipating hybrid bonding for high-bandwidth memory to appear later and in smaller volumes.

Semiconductor stocks have been volatile, with Morgan Stanley's coverage up about 70% for the year before falling roughly 60% from June peaks. Simpson listed four risks into year-end, including a potential shortfall in data-center buildout and a tougher macro backdrop.