Bank of America upgraded STMicroelectronics from Neutral to Buy on Tuesday and placed a Street-high price target of €86 ($100) on the shares, saying the market is not fully pricing in the company’s earnings potential over the next two to three years. The stock responded in Paris, rising 2.5% by 08:14 GMT.
Analysts at the bank, led by Didier Scemama, identified four principal drivers supporting the upgrade: a growing foothold in optical interconnects for data centers, exposure to the expanding low-earth orbit (LEO) satellite market, an incipient recovery in automotive and industrial demand, and meaningful operating leverage derived from substantial spare manufacturing capacity.
In the note, the analysts were explicit about their view on earnings.
and they provided a three-year EPS trajectory of $1.57 in 2026, $3.53 in 2027, and $4.63 in 2028. Those projections sit 30% to 43% above consensus across the three-year span, according to the bank."We think the market materially underestimates STM’s earnings power over the course of the next 2-3 years,"
Optical interconnects are central to Bank of America’s bullish case. The bank projects STM’s optical interconnect revenue to expand from $670 million this year to $2.3 billion by 2028. That growth is attributed to the company’s 300mm silicon photonics capacity, specialty processing capabilities, and advanced packaging technologies.
On silicon photonics market share, the analysts forecast a substantial share increase, from around 5% at present to more than 30% within the next three years. Amazon Web Services is cited as an anchor customer, with Bank of America expecting additional customer diversification as the business scales.
Bank of America also underlined the company’s strong position in the LEO satellite segment, where it estimates STM currently holds roughly 90% market share. The bank modeled cumulative LEO-related revenues of $3.6 billion between 2026 and 2028, which exceeds the company’s guidance of $3 billion or more. The higher outlook is attributed to a projected greater number of satellite launches, diversification of customers, and higher content per satellite.
The analysts added a caveat about near-term assumptions:
indicating that their stated revenue and earnings projections exclude potential upside from that niche application."Our new forecasts do not assume revenues from datacenters in space, which we expect to benefit towards the end of the decade given their CPO capabilities,"
Bank of America expects margin expansion alongside revenue growth. The note models gross margins widening from 37.3% this year to 46% by 2028, outpacing consensus of 43.3%. The bank cites several drivers of margin improvement: lower unused capacity charges as demand ramps, improved pricing, and scale-up of higher-margin product lines.
The €86 price target is derived from a 13x multiple on 2028 EV/EBITDA, the bank said, placing it at the upper end of STM’s historical valuation range. Even at that multiple, the bank notes the implied valuation represents a 12% discount to diversified semiconductor peers trading at 14.8x. Bank of America highlighted a more direct comparison, noting STM currently trades at a 32% discount to diversified peers on 2028E EV/EBITDA and stating that such a deep discount is not justified.
Market reaction to the upgrade was immediate in Paris trading, where the shares recorded a gain by the 08:14 GMT mark. The bank’s case rests on specific, measurable growth vectors and margin improvement assumptions, and it explicitly excludes certain potential revenue streams from its base forecasts, leaving room for additional upside should those markets develop faster than expected.
Summary
Bank of America upgraded STMicroelectronics to Buy and set a €86 price target, arguing the market underestimates the company's earnings power over the next two to three years. The bank cited growth in optical interconnects, a dominant LEO satellite position, early recovery in automotive and industrial markets, and operating leverage from spare capacity. BofA modeled materially higher EPS through 2028 and expects substantial margin expansion.
Key points
- Bank of America upgraded STM to Buy and set a Street-high target of €86 ($100).
- Analysts forecast EPS of $1.57 (2026), $3.53 (2027), and $4.63 (2028) - 30% to 43% above consensus.
- Primary growth drivers include optical interconnects for data centers, a leading LEO satellite position, recovering automotive and industrial demand, and operating leverage from spare capacity.
Risks and uncertainties
- Execution risk on scaling optical interconnects and silicon photonics to the revenue levels projected could affect the earnings trajectory - this impacts the data center and semiconductor equipment sectors.
- LEO satellite revenue assumptions are above company guidance; variations in launch cadence, customer adoption, or content per satellite could change realized revenues - this affects aerospace and communications markets.
- Valuation remains a point of uncertainty: STM is trading at a substantial discount to peers on 2028E EV/EBITDA, and persistence of that discount would limit near-term upside - relevant to equity markets and semiconductor sector valuations.