Core Business Accelerating, Credibility of New Growth Engines Improving

Overview

This report reviews ams-Osram's performance in the second quarter of 2026. Although results may have been partly boosted by pull-forward purchasing ahead of the Infineon transaction, J.P. Morgan believes that, excluding this factor, the automotive and industrial core businesses still accelerated notably, while the non-Android consumer business remained solid. The company is also benefiting from cyclical recovery, market share gains, increased content per vehicle or device, and the success of products such as Eviyos. Execution progress in the two new businesses, AI Photonics and smart glasses, has increased market confidence in growth in 2027 and beyond.

Core views

Core views include: first, growth of approximately 9% on a constant-currency and comparable basis indicates a substantive recovery in the core business; second, the industry consolidation strategy in the L&S business is improving growth and margins; third, the expansion of AI Photonics solutions into subsystems and packaging is conducive to partner adoption and increases revenue potential; fourth, mass-production preparation for smart glasses may drive a ramp starting in early 2027; fifth, 2026 remains a transition year with changing asset boundaries, but cost savings, FX improvement and organic growth are expected to support an EBITDA recovery in 2027; sixth, continued deleveraging will improve the financial profile, although pensions, the Osram put option and free cash flow pressure still need attention.

Analysis framework

The report assesses the core business by combining second-quarter operating trends, constant-currency and comparable-business metrics, and order and design-win information; it builds a 2027 EBITDA bridge through changes in asset boundaries, FX, Simplify savings and profit conversion from organic growth; it then updates 2026–2028 earnings forecasts and derives the December 2027 target price using a 2028 EBIT multiple methodology.

Methodology notes

• Earnings ForecastEBITDA Driver Bridge

  Deriving 2027 earnings from 2026 baseline earnings

  Based on approximately €560m of adjusted EBITDA in 2026, incorporating a negative impact of approximately €60m–€75m from changes in asset boundaries, a positive FX impact of approximately €10m, a positive impact of approximately €50m–€60m from Simplify savings, and profit conversion from organic growth in the mid-to-high 20% range, resulting in a 2027 forecast of approximately €615m.

• Valuation methodsTarget-Year EBIT Multiple Methodology

  Valuation based on 2028 EBIT

  Applying an unchanged 12.5x valuation multiple to the 2028 EBIT forecast, and incorporating the current balance sheet, expected proceeds from the Infineon disposal and the latest enterprise value bridge, yields a December 2027 target price of CHF24.00.

• Operating AnalysisConstant-Currency and Comparable-Business Basis

  Observing organic growth excluding FX and asset-boundary changes

  The report estimates growth of approximately 9% on a constant-currency and comparable-business-scope basis, used to assess the true operating momentum of the automotive, industrial and consumer core businesses.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ams-Osram (AMS.S)

  Report-covered stock and subject of Overweight recommendation

  Strengths

  Recovery in automotive and industrial businesses, Eviyos driving share and content gains, improved growth and profitability in L&S, AI Photonics and smart glasses providing medium- to long-term incremental growth, and Simplify savings and deleveraging improving the financial position.

  Weaknesses

  2026 remains a period of asset-boundary adjustments, with earnings and free cash flow under pressure, while financial leverage and the burden from pensions and the Osram put option remain relatively high.

  Comparison

  The target price corresponds to 2027 and 2028 EV/EBITDA of 8.5x and 7.3x, respectively, and P/E of 20.6x and 13.4x, respectively; the report also uses the SOX Index as a reference for share price performance.

  Risks

  Adoption of new businesses slower than expected, intensified competition in the core automotive market, weakening smartphone demand, an unsuccessful sale of Kulim II or refinancing, and restructuring and working capital continuing to drag on cash flow.

Key data

• Current Share PriceCHF17.10As of August 4, 2026
• Target PriceCHF24.00December 2027 target price, previous value CHF24.40
• Implied Upsideapproximately 40.4%Calculated based on target price CHF24.00 and current price CHF17.10
• Comparable-Basis Core Business Growthapproximately 9%Estimated on a constant-currency and comparable-business-scope basis
• 2026 Revenue Forecast€3,296mRaised by approximately 1.2% from the previous forecast of €3,258m
• 2027 Revenue Forecast€3,432mExpected year-on-year growth of 4.1%
• 2027 Adjusted EBITDA€615mExpected year-on-year growth of 9.5%, with a margin of 17.9%
• 2028 Adjusted EBITDA€715mMargin expected to rise to 19.5%
• 2026 Free Cash Flownegative €320mReflects transition period, restructuring and working capital pressure
• Expected Year-End Net Financial Debt Leverage2.1xThe Osram put option and pension liabilities add another approximately 1.7x burden
• Target Price Implied EV/EBITDA8.5x in 2027, 7.3x in 2028Target price valuation basis
• Target Price Implied P/E20.6x in 2027, 13.4x in 2028Target price valuation basis

Impact & implications

For AMS.S, the recovery in the core business and the improved credibility of new growth projects are expected to shift the market's focus from 2026 transition-period earnings to the earnings recovery and valuation re-rating anchored in 2027–2028. The current target price still offers high potential returns, but the investment thesis depends on AI Photonics, smart glasses, cost savings and deleveraging being delivered as planned; if commercialization is delayed or free cash flow remains weak, valuation recovery may be hindered.

Risks

• The adoption speed or scale of the Micro LED data center interconnect solution may be lower than expected, or ams-Osram's market share may be below assumptions.
• Market adoption or revenue ramp of smart glasses may be slower than expected, or the company's market share may fall short of assumptions.
• Competitive pressure in the core automotive market may increase.
• The smartphone end market may slow, affecting demand for the company as a component supplier.
• There may be a lack of progress on the sale of Kulim II, or the company may be unable to complete refinancing at lower interest rates.
• Restructuring charges and working capital changes may continue to weigh on earnings quality and free cash flow.
• Pull-forward purchasing ahead of the Infineon transaction may have led to an overestimation of underlying demand strength in the second quarter.
• Pension liabilities and the Osram put option may continue to pressure the balance sheet.

What to watch

• Whether the automotive, industrial and non-Android consumer businesses can sustain growth momentum on a constant-currency and comparable basis.
• Partner adoption, design wins and mass-production timetable for AI Photonics subsystem or packaging solutions.
• Progress in smart glasses mass-production preparation, and whether revenue begins to ramp in early 2027.
• Continued improvement in L&S business growth, market share and margins.
• Whether the Simplify program can achieve approximately €50m–€60m of annualized savings in 2027.
• Whether 2027 adjusted EBITDA can reach approximately €615m and a 17.9% margin.
• Net debt leverage, the sale of Kulim II, refinancing and payment arrangements for the Osram put option.
• The impact of restructuring and working capital changes on free cash flow recovery.