AKYLA
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
- 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.
- 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.
- 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').
- 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.
- 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').
Q1 FY27 Earnings Snapshot
Disclaimer
This is not financial advice.
This report is for informational purposes only and is not investment advice.
The Q1'26 call materially firmed the bull case. Headline GAAP results were soft — net income of $37M and GAAP EPS of $0.04 against a $0.19 consensus on a $0.13 non-GAAP base — but the forward signals were unambiguously constructive. Bookings ran 'well above 1 across all end markets and regions' with 'absolutely no pull-in order,' and distribution inventory is 'now normalized,' the two preconditions for a clean cyclical turn. Management guided Q2 revenue to $3.45B (+11.6% QoQ, +24.9% YoY), describing it as 'well above average seasonality,' and committed to full-year 2026 'double-digit growth.' Year-over-year, every end market grew: Communications Equipment & Computer Peripherals +41%, Industrial +26%, Personal Electronics +21%, Automotive +15% (the 'return to year-over-year growth'). The data-center narrative crystallized into hard guidance — 'nicely above USD 500 million for 2026 and well above $1 billion for 2027' — underpinned by a 'multiyear multibillion U.S. dollar commercial engagement' with AWS, high-volume PIC100 silicon-photonics production, and an 800V power-conversion portfolio. Management broke the 2026 data-center mix as ~40% analog/power and ~60% microcontroller/RF-optical. The swing variable is gross margin, which compressed 140bps sequentially to 33.8% on reshaping inefficiency (200mm→300mm, SiC 150mm→200mm transitions) but is guided up to ~34.8% (35.2% non-GAAP) in Q2 with explicit 'sequential improvement over Q3 and Q4.' CFO Grandi reaffirmed the structural target: '40% gross margin' once quarterly revenue clears $4B and the reshaping completes, with the bulk of efficiency benefits 'end of '27 and entering in '28.' Pricing — long a worry — improved: the prior 'low to mid-single-digit' decline expectation narrowed to 'a very low single-digit price decline' with 'some selective price increase.'