UBS downgraded Infineon to "neutral" from "buy" while slashing its price target to €45 from €47. The German chipmaker faces challenges from limited upside in artificial intelligence, a deteriorating China automotive market, and delayed margin recovery. Infineon shares fell 4.8% to €40.26 on Friday, trading 16% below their February peak despite having doubled from April lows.

China accounts for 30% of Infineon's total revenue and 43% of its automotive segment. UBS forecasts a 7% year-on-year decline in China auto revenue through FY27 as domestic wholesale vehicle volumes plummeted 19% in January 2026. Chinese chipmakers continue gaining ground, growing at 16% per quarter since Q1 2023.

UBS estimates Infineon's AI revenue guidance requires capacity additions of 45 gigawatts and 41 gigawatts for FY26 and FY27 respectively, far exceeding the brokerage's projected market growth of just 15-25 gigawatts annually. The bank forecasts adjusted gross margins declining from 48.2% in FY25 to 46% by FY28, with AI datacenter segment margins compressing from 55% to 48%.