Improving demand visibility, with AI datacentres and optical connectivity becoming STMicroelectronics' main growth drivers

Overview

This report is a Goldman Sachs company research update on STMicroelectronics. The core view is that the company's demand visibility is improving, with AI datacentres and optical interconnect becoming the most important medium- to long-term growth drivers; at the same time, demand in automotive, general-purpose MCUs, analog and SiC is also normalizing. However, manufacturing reshaping, underutilization charges, new capacity start-up and technology migration costs remain sources of near-term margin pressure, so Goldman Sachs maintains its Neutral rating.

Core views

Goldman Sachs believes STM's growth outlook is supported by four main themes: first, book-to-bill is close to 2x and optical interconnect is above 2x, with backlog covering about 4.5 to 5 quarters of revenue, indicating materially improved demand visibility; second, the AI datacentre revenue outlook has been raised, with 2026 expected to exceed $1bn and 2027 expected to be well above $2bn, and FY26 datacentre revenue already covered by backlog; third, after inventory normalization, demand for general-purpose MCUs, analog and SiC is improving, with tightening supply in some categories; fourth, the ramp-up of 300mm capacity and expansion of silicon photonics manufacturing are expected to support future MCU and AI-related growth. The constraint is that the manufacturing transition still brings about a 60bp gross margin headwind and may continue to affect performance خلال the year.

Analysis framework

The report takes as its main thread the gap between 2Q26 results and consensus expectations, 3Q26 and 4Q26 revenue guidance, book-to-bill, backlog, end-market growth, gross margin bridge, capacity ramp-up progress, and FY26-30 forecast revisions, and combines these with EV/EBITDA valuation multiples to update the 12-month target price.

Methodology notes

• Valuation methodsEV/EBITDA multiple method

  11x 2HCY27+1HCY28E EV/EBITDA

  Goldman Sachs applies the updated EBITDA forecast to an 11x 2HCY27+1HCY28E EV/EBITDA multiple to derive 12-month target prices of STMPA.PA €53.00 and STM ADR $60.50; the multiple is adjusted from the prior 13x CY27 to reflect the valuation period roll-forward.

• Factor analysisGS Factor Profile

  Growth, Financial Returns, Multiple and Integrated percentiles

  GS Factor Profile compares the stock with the market and industry peers across growth, financial returns, valuation multiples and integrated metrics, providing investment context rather than solely determining the rating.

• M&A probability frameworkM&A Rank

  M&A probability score from 1 to 3

  Goldman Sachs global coverage uses qualitative and quantitative factors to assess the probability of a company being acquired, where 1 represents high probability, 2 medium probability and 3 low probability; if the score is 1 or 2, an M&A component is usually incorporated into the target price.

Asset mapping & comparison

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

• STMPA.PA

  Core covered name, Paris-listed ordinary shares

  Strengths

  AI datacentre revenue outlook has been raised, optical interconnect book-to-bill is above 2x, backlog covers about 4.5 to 5 quarters, and the 300mm capacity ramp supports MCU and AI growth.

  Weaknesses

  Manufacturing reshaping, underutilization charges, new capacity start-up and technology transfer costs weigh on near-term gross margin; reported 2Q26 EBIT was below consensus due to impairment, restructuring and PPA impact.

  Comparison

  Maintains Neutral relative to the coverage universe; the report mentions ASM International, ASML Holding, BE Semiconductor Industries and Infineon as relevant coverage universe members.

  Risks

  Inventory correction timing, SiC competitive momentum, pricing sustainability, manufacturing transition execution and capacity constraints.

• US.STM

  ADR of the same company, corresponding to the U.S.-traded security

  Strengths

  Shares the same AI datacentre, optical interconnect, MCU, SiC and ADAS growth drivers as STMPA.PA.

  Weaknesses

  Like the ordinary shares, it is exposed to constrained margin recovery, manufacturing transition costs and demand volatility.

  Comparison

  ADR 12-month target price of $60.50 versus current price of $51.54, implying 17.4% upside.

  Risks

  FX volatility, ADR versus local-share price differences, industry cyclicality and execution risk.

• Infineon

  Power semiconductor peer; the report notes that STM's strong AI demand and strong orders are a positive signal for it

  Strengths

  May benefit from improving AI-related power semiconductor demand and strong industry orders.

  Weaknesses

  The report does not provide detailed financial forecast or target price updates for Infineon.

  Comparison

  As a peer reference, STM's improvement in AI demand and orders can serve as a signal for the power semiconductor cycle.

  Risks

  Peer mapping is not a direct earnings forecast and still depends on each company's product mix, customer structure and supply capability.

Key data

• 2Q26 revenue performance1% above the Visible Alpha consensusMainly driven by higher Automotive and CECP revenue.
• 2Q26 adjusted EBIT performance15% above consensus after excluding specific itemsUnder the report's methodology, this excludes $58mn of impairment and restructuring-related costs, as well as a $24mn PPA headwind related to the NXP MEMS acquisition.
• 3Q26 revenue guidance$3.7bn midpointAbout 2% below consensus.
• 4Q26 revenue outlookAbove $4bnClose to the $4.03bn consensus, implying FY26 revenue is broadly in line with market expectations.
• Book-to-billClose to 2x overall, above 2x in optical interconnectReflecting improved demand visibility and strong optical connectivity demand.
• Backlog coverageAbout 4.5 to 5 quarters of Q2 revenueMore than half of Q2 orders are scheduled for delivery in the following year.
• Datacentre revenue outlookAbove $1bn in 2026 and well above $2bn in 2027Driven by AI infrastructure, 800G and 1.6T pluggable optical modules, silicon photonics and optical interconnect demand.
• 3Q26 non-GAAP gross margin guidance37% midpointImproving sequentially, but manufacturing reshaping costs and underutilization charges remain a drag.
• FY26-30 revenue forecast revisionRaised by 3% to 5%Reflecting growth in AI business and ADAS exposure.
• FY26-30 EPS forecast revision-2% to +7%Affected by EBIT forecast changes and the latest share count assumptions.
• STMPA.PA target price and upside€53.00; 13.3%Current price €46.77.
• STM ADR target price and upside$60.50; 17.4%Current price $51.54.

Impact & implications

The report's implication for STMicroelectronics is neutral-to-constructive: demand and order visibility are improving, while AI datacentres, optical interconnect and the 300mm capacity ramp provide medium- to long-term growth optionality; however, near-term earnings quality remains affected by manufacturing migration, underutilization charges and restructuring-related costs. For peers, Goldman Sachs believes strong AI demand and order strength carry positive signaling value for power semiconductor peer Infineon.

Risks

• Consumer semiconductor inventory correction could bottom faster or slower than expected.
• Acceleration or deceleration in competitors' SiC momentum could affect STM's related business performance.
• There is uncertainty over whether the current favorable pricing can be sustained.
• The manufacturing reshaping plan involves shifting silicon capacity from 200mm to 300mm and SiC from 150mm to 200mm, with completion not expected before the end of 2027, potentially continuing to pressure gross margin during the period.
• New factory start-up costs, underutilization charges and localized capacity constraints at OSAT partners may limit near-term margin upside.
• Personal electronics remains a relative weak spot in the demand recovery, with management expecting negative year-on-year performance in the second half.

What to watch

• Whether 3Q26 revenue comes in around the $3.7bn midpoint, and whether 4Q26 revenue exceeds $4bn as management expects.
• Whether book-to-bill can remain close to 2x, and whether optical interconnect book-to-bill can continue to exceed 2x.
• Whether 2026 datacentre revenue exceeds $1bn, and whether 2027 is well above $2bn.
• Ramp-up progress of 800G and 1.6T pluggable optical modules, silicon photonics and optical interconnect products.
• Whether non-GAAP gross margin can continue improving in 4Q from the 37% midpoint in 3Q26.
• Progress at the Agrate 300mm fab, the Crolles target of 15,000 wafers per week, and China 40nm technology qualification.
• Whether demand in general-purpose MCUs, analog, SiC, industrial and automotive end markets continues to improve.