Raising Price Target on Data Center Growth Opportunities

Research evidence excerpt

Raising Price Target on Data Center Growth Opportunities

Japan InsightM

Executive Summary

Maintain OW rating, raise price target from from ¥4,000 to ¥6,000

Our previous price target was based on P/E 15x our CY27 non-GAAP EPS forecast,

reflecting a 10% discount to the average valuation of peers including Infineon

Technologies, STMicroelectronics, and NXP Semiconductor, to account for uncertainties

surrounding the execution of Renesas' software/digitalization strategy and capital

allocation.

We now raise our target P/E to 22x our CY27 non-GAAP EPS forecast. While uncertainties

regarding the software/digitalization strategy remain, we are reducing the valuation

discount to peers from 10% to 5%, reflecting the re-rating of peer stocks as well as the

factors outlined in the section below:

Exhibit 1: Renesas Electronics: 1-year forward P/E (Consensus EPS basis)

(x) Renesas Electronics (6723) (yen)

40 5,500

P/E (Left scale)

4,500

Stock price (Right scale)

3,500

20 2,500

1,500

Our target 500 5

multiple

0 -500

15 16 17 18 19 20 21 22 23 24 25 26 (CY)

Source: FactSet, Morgan Stanley Research

Exhibit 2: Global semiconductor companies: Valuation

Rating Stock Price Market Cap P/E EV/EBITDA ROE

Industry Co. Price target 6/18/26 26YTD (US$ bn) FY25 FY26e FY27e FY25 FY26e FY27e FY25 FY26e FY27e

Texas Instruments Attractive UW $ 221.0 $ 322.9 86% $293.8 31.9 41.3 38.0 20.9 27.7 24.9 30% 42% 43%

Analog Devices Inc. Attractive OW $ 428.0 $ 164.0 -40% $211.6 30.1 35.4 29.6 24.1 29.2 24.5 7% 13% 16%

Infineon Technologies In-Line OW € 91.00 € 82.0 117% $123.0 27.1 47.2 29.8 12.2 21.6 15.9 6% 9% 14%

NXP Semiconductor Attractive OW $ 335.0 $ 313.3 44% $79.1 18.4 20.9 16.9 15.3 17.0 14.0 21% 33% 30%

STMicroelectronics In-Line OW € 74.00 € 67.9 203% $71.1 58.5 66.1 28.1 9.0 23.1 15.6 1% 5% 13%