The automotive semiconductor sector has finally returned to growth following seven straight quarters of contraction, according to a new UBS report, which continues to express a positive view on analog semiconductors.
The sector posted 1% year-on-year revenue growth in Q2 2025, which UBS characterizes as a key inflection point. Consensus forecasts indicate this momentum will persist, with projected growth of 4% in Q3 and 14% in Q4.
UBS revised its full-year 2025 automotive semiconductor revenue forecast to a 7% decline, an improvement from the previous 9% drop estimate. For 2026, the bank now anticipates 11% growth, up from an earlier 9% projection.
Industrial semiconductors also showed resilience, growing 2% year-on-year in Q2 2025, in line with consensus expectations. UBS now expects industrial revenues among major analog players to rise 8% in 2025, compared with a prior estimate of roughly 6%, following a 19% contraction in 2024. The 2026 growth forecast stands at 14%.
Regionally, the automotive semiconductor market is normalizing in 2025. China is projected to see 4% year-on-year growth, while non-China markets remain largely flat. By 2026, UBS anticipates both China and non-China markets will expand by 8%.
Year-to-date, China’s car production has risen 14% year-on-year, with new energy vehicles (NEVs) up 37%. July data showed overall car volume growth of 14% and NEV growth of 25%, suggesting a modest slowdown in the second half of 2025 due to a high prior-year comparison base.
Leading indicators point to continued strength in 2026, as quarter-over-quarter semiconductor revenue growth turned positive again in Q2 2025. Semiconductor inventory days also declined in Q2 and are expected to fall further in H2 2025.
UBS highlighted potential risks, including weaker car production or sales, tariff increases, semiconductor pricing pressure, and a possible slowdown in China’s demand in the latter half of 2025.
Analog semiconductors are currently trading at roughly 20 times 2026 price-to-earnings, slightly above the 10-year average 12-month forward P/E of 19x. UBS’s favored stocks in the sector include Texas Instruments, Infineon, and Renesas, all rated as “Buy.”
Conversely, the bank’s least preferred names are ON Semiconductor and Melexis, both carrying a “Neutral” rating.
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