Morningstar

STMicro: Company Lifts Revenue Forecasts Amid AI Boom

We’ve significantly raised our fair value estimate for STMicro stock.

The booth of the company STMicroelectronics at a tech festival.
Romain Doucelin/NurPhoto via Getty
Securities in This Article
STMicroelectronics NV ADR
(STM)

Key Morningstar Metrics for STMicroelectronics

  • Fair Value Estimate
    : $72.00
  • Morningstar Rating
    : ★★★
  • Morningstar Economic Moat Rating
    : Narrow
  • Morningstar Uncertainty Rating
    : Very High

STMicroelectronics STM has raised its revenue ambition for its data center chip business. It now expects $1 billion of data center revenue in 2026, up from prior comments of “nicely above $500 million,” and thinks revenue could double in 2027, up from “well above $1 billion” expected previously.

Why it matters: STMicro raised its data center revenue forecast ahead of an investor conference. We think the company is in a nice position in the artificial intelligence infrastructure buildout.

  • STMicro appears to be well-exposed to silicon photonics and power semis, both of which are emerging as growing AI opportunities, along with Nvidia’s more advanced AI rack-scale solutions, which are starting to require advanced power (800 volts) and optical content.
  • At the conference, STMicro also confirmed its medium-term ambitions of $18 billion of revenue and close to 45% gross margin. We previously thought both targets were out of reach, but the AI boom will now make these targets achievable, in our view.

The bottom line: We have raised our fair value estimate to $72 per share, thanks to higher estimates for STMicro’s data center and low-Earth-orbit satellite businesses. Shares rose as much as 15% in midday trading on the June 2 news and appear only modestly overvalued to us.

  • We raised our 2027 revenue estimate to $17.8 billion, ahead of the prior FactSet consensus of $16.3 billion, as we anticipate that even STMicro’s comment of $2 billion of AI revenue in 2027 might be conservative.
  • We now think STMicro will easily clear its $18 billion revenue ambition on the heels of strong AI and LEO chip demand, the latter of which comes from its partnerships with SpaceX and others.

Coming up: STMicro has also recently issued letters to customers suggesting price increases. These should bode well for its gross margin as capacity tightens up. We doubt higher prices will last forever, but any windfalls should support future profits.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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