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Equity Research Semiconductors & Related Devices Initiation of Coverage — BUY Last Updated: June 28, 2026

STMicroelectronics N.V. (STM)

FY2025 was the trough. AI-datacenter optics/photonics, silicon carbide and #1-ranked MCUs drive a double-digit revenue recovery while gross margin re-rates off the low-30s — a credible path to ~2x by mid-2028.

Thesis

  1. FY2025 revenue of $11.8B (down 11% YoY, off the $17.3B 2023 peak) marks the cyclical bottom. Q1'26 booking momentum was 'well above 1 across all end markets and regions' and management guides 2026 to 'double-digit growth,' with distribution inventory now normalized — the inflection is in the numbers, not the narrative.
  2. The idiosyncratic growth engine is AI-datacenter content. Management confirms data-center revenue 'nicely above USD 500 million for 2026 and well above $1 billion for 2027,' anchored by a 'multiyear multibillion U.S. dollar commercial engagement' with AWS, silicon-photonics PIC100 in high-volume production, BiCMOS, and 800V power conversion. The optics TAM is exploding (AI optical transceivers ~$16.5B→~$26B in 2026, +60%), and supply is the constraint, not demand.
  3. Gross margin is the swing variable and it is recovering: 33.8% in Q1'26 → guided 'about 34.8%' (35.2% non-GAAP) in Q2, with management explicitly committing to 'sequential improvement over Q3 and Q4' and a structural path to 40% once quarterly revenue exceeds $4B and the 200mm→300mm / SiC 150mm→200mm reshaping completes ('benefits…more end of '27 and entering in '28').
  4. PATH TO 2x: revenue recovering from the $11.8B trough toward ~$16–17B by 2028 (cyclical normalization + data-center scaling 'well above $1B' in 2027 and ramping + LEO satellite 'well above $3B cumulative '26–'28') × gross margin re-rating to ~40% × a modest P/S re-rate to ~7x (still a discount to ADI/TXN at 15–17x) bridges ~$66.6B market cap to roughly double (~$130B), i.e. ~$140/share. The math is shown in Valuation; the assumptions are explicit and sourced.
  5. Optionality is layered and largely free: NXP MEMS sensor acquisition (closed Feb 2026) accelerating automotive sensors above market growth; Sanan SiC JV in China loading from end-2026; STM32-in-China supply chain de-risking; and a glass-substrate/CPO inflection (2026–2028) where ST's 300mm silicon-photonics capability is a structural differentiator ('unique company capable to provide silicon photonics technology on 12-inch').

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This report is for informational purposes only and is not investment advice.