01:55 PM EDT, 07/02/2024 (MT Newswires) -- Amkor Technology's ( AMKR ) long-term prospects are positive, but there are concerns around the outsourced semiconductor assembly and test cycle, and on potentially "elevated valuation" in the near term, Morgan Stanley said in a note Tuesday.

Analysts said that while the semiconductor cycle is expected to strengthen through the rest of 2024, OSATs are expected to lag due to excess inventory at suppliers and distributors as well as lower artificial intelligence exposure.

On whether Amkor's ( AMKR ) Arizona facility will shift the needle, the investment bank said it is estimated to contribute a high single-digit percentage to revenue in Q2, while the company's 2.5D packaging capacity is expected to contribute a mid-single-digit percentage.

OSAT capital expense likely bottomed out in Q1 and should increase on the back of AI and advanced packaging, the analysts added.

"We continue to believe that Amkor ( AMKR ) is uniquely positioned to benefit from an OSAT industry inflection with higher margin opportunities ahead, but stay sidelined given the stock's multiple premium over historic," the firm said in the note.

Risks include a weaker-than-expected semiconductor market recovery and the impact of advanced packaging innovation on OSATs' earnings, Morgan Stanley said.

Morgan Stanley retained its equal-weight rating on the stock and raised the price target to $38 from $34.

Price: 40.52, Change: +0.28, Percent Change: +0.70