BofA Cautious on EU Chip Names Over Memory-Cycle Risks

Key Moments:

Selective Downgrades in European Semiconductors

Bank of America has taken a more cautious stance on parts of the European semiconductor sector, issuing a trio of rating cuts focused on companies with elevated memory exposure. The firm lowered its recommendation on VAT Group to Neutral from Buy, shifted Comet to Underperform from Buy, and moved Inficon to Underperform from Neutral. The bank argued that these businesses face heightened risk if the memory portion of the chip cycle weakens.

These changes come on the heels of Bank of America’s downgrade of Siltronic to Underperform in the prior week, bringing its recent wave of negative rating actions in European semiconductors to four companies. The bank noted that periods of deterioration in the memory cycle have historically weighed most heavily on equipment suppliers with high fixed costs, and it no longer considers VAT Group and Comet suitable for Buy ratings under that backdrop.

“Rarely has the market been as polarised between universally bullish bottom-up indicators and bearish top-down indicators,” the firm’s analyst wrote.

Bottom-Up Strength vs. Top-Down Concerns

Bank of America pointed out that order books and management commentary across European semiconductor capital equipment names continue to look supportive. Even so, the firm emphasized that broader macro and structural risks are becoming more visible.

The bank highlighted two key areas of concern: potential financing challenges for so-called neocloud operators and the impact of tighter regulatory oversight on data-center expansion. These factors are seen as potential constraints on future capital spending trajectories, despite robust current indicators.

Cloud Capex Scenarios and Data-Center Implications

According to Bank of America, U.S. cloud capital expenditure is currently running at a $300 billion per quarter rate, equivalent to $1.2 trillion on an annualized basis, with projections pointing toward $375 billion per quarter in calendar 2027.

The firm calculated that if the current level of spending represents an interim peak, there is roughly 20% potential downside relative to calendar 2027 capex expectations. By its estimates, that would translate into an approximately 10 GW drag against its baseline assumption of more than 40 GW of data-center deployment in 2027, based on an average of $40 billion in capex per GW across merchant and custom chips.

Valuation Gaps Across Semis and Semicap Names

On the valuation side, Bank of America observed that the Philadelphia Semiconductor Index (SOX) has lagged the S&P 500 by more than 37% since its June peak. The bank identified this underperformance as the largest such relative drawdown for the SOX in the last 20 years.

This divergence has contributed to a notable reset in European semiconductor-related valuations. Bank of America indicated that European semiconductor capital equipment stocks are trading at around 10x EV/EBIT below their median multiples based on calendar 2027 consensus estimates. In comparison, European analog semiconductor names are trading 1.6x EV/EBIT below their median levels, according to the firm’s analysis.

Preferred Names: ASML, ASM International, and TPRO

Despite the downgrades, Bank of America stressed that it is not uniformly negative on the sector. The firm maintained Buy ratings on ASML, ASM International, and BE Semiconductor’s peer TPRO. It pointed out that each of these stocks trades between 0.5x and 4.0x below their respective five-year historical EV/EBIT multiples.

“Given the exceptionally strong demand backdrop for WFE, we think the risk/reward is positively skewed and maintain our Buy ratings,” the firm’s analyst said.

Names Seen at Risk of Further De-Rating

At the opposite end of the valuation spectrum, Bank of America highlighted BESI, Mycronic, and Inficon as trading approximately 5.0x above their historical trough EV/EBIT multiples. The firm suggested that this premium positioning leaves them more exposed to additional multiple compression in the event of a further sector pullback.

Analog Segment: Trough vs. Premium Multiples

Within the analog semiconductor universe, Bank of America said Infineon, Tower Semiconductor, and Melexis are currently trading closest to their historical trough EV/EBIT multiples. By contrast, STMicro, AMS Osram, and Nordic Semiconductor sit furthest above their trough levels.

“STMicro, AMS Osram and Nordic trade the most above their trough multiples largely because of their greater consumer exposure, which could make them beneficiaries of a rotation out of AI, in our view,” the analyst added.

Strategy: Focus on Idiosyncratic Drivers, Not Broad Beta

Bank of America concluded that investors should become more discriminating in their semiconductor exposure as the cycle matures and macro warning signs accumulate.

“While timing a top in the sector is difficult, we think there are enough warning signs to warrant a more selective approach to the sector,” BofA wrote, adding that “it is more prudent to own the stocks with the best idiosyncratic drivers rather than have a broad exposure to the semiconductor cycle.”