UBS bullish on analog semiconductor stocks, automotive market recovery presents opportunities

Investing.com – UBS has identified its top pick in the analog semiconductor stocks, a sector showing positive momentum into 2026. Despite new headwinds from a slowdown in China’s auto market, analysts emphasize that trends in automotive and industrial end markets are improving.

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UBS’s global I/O semiconductor team notes that revenue from analog semiconductors is expected to continue growing through 2026, with Q4 2025 revenue up 11% year-over-year. The market widely anticipates an 18% YoY increase in Q1 and about 16% growth for the full year 2026, up from previous estimates of 12%.

Several analog semiconductor companies, including Texas Instruments, Infineon, and NXP, have raised prices due to inflationary costs, which could provide additional upside potential.

The current 12-month forward P/E ratio for analog semiconductors is approximately 21.6x, compared to a 10-year average of 19x. While cautious about the Chinese market, UBS remains optimistic about the analog semiconductor sector. Retail sales data for China from January to February show a 19% decline year-to-date.

Here are UBS’s top picks in analog semiconductors:

1. STMicroelectronics — UBS rates the company as a buy, calling it one of the most favored targets in the analog semiconductor space. The company benefits from the growing importance of AI applications, with management raising guidance for AI-related end markets this quarter.

Recent developments include STMicroelectronics partnering with Leopard Imaging to launch a new multimodal vision module for robotic systems, integrated with NVIDIA’s Jetson platform.

2. Renesas Electronics — UBS rates this Japanese semiconductor manufacturer as a buy, making it one of the preferred stocks in the sector. The company is expected to benefit from a recovery in automotive semiconductors, which are projected to grow 8% in Q1 2026, marking the first YoY increase in over two years.

Renesas reported strong Q4 results, with sales of 350.9 billion yen, surpassing market expectations, and a gross margin of 59.3%, better than guidance.

3. Texas Instruments — UBS rates the company as a buy and one of its top picks in the analog semiconductor sector. Texas Instruments is among the companies that raised prices this quarter due to inflation, which could provide upside potential against the expected low single-digit percentage price declines in fiscal 2026 and 2027.

Texas Instruments announced a partnership with Nvidia to develop humanoid robot technology and has made an offer to acquire Silicon Laboratories. Following the acquisition announcement, Moody’s downgraded the company’s outlook from stable to negative.

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