Last Update 03 Dec 25

Fair value Decreased 0.39%

STMPA: Normalizing Chip Inventories Will Support Multi Year Margin Recovery

We trim our fair value estimate for STMicroelectronics slightly to approximately $24.62 from about $24.72 per share as analysts lower price targets amid concern over a slower revenue recovery trajectory and near term gross margin pressure, even as longer term fundamentals are viewed as gradually improving.

Analyst Commentary

Recent Street commentary on STMicroelectronics reflects a mixed but generally constructive stance, with most analysts trimming price targets to reflect slower near term revenue growth and gross margin compression while acknowledging a healthier medium term setup.

Price targets have been reset lower across both U.S. dollar and euro based coverage, with ranges now clustering in the low to mid EUR 20s and mid USD 20s to low USD 30s. This implies more modest upside and a tighter risk or reward profile relative to prior expectations.

Bullish Takeaways

Bullish analysts argue that recent target cuts largely reflect a reset of expectations, not a structural change in STM's competitive position. They see the current valuation as better aligned with achievable earnings through 2026.
Some view lower gross margins in the near term as creating easier comparisons into 2026. This may potentially enable STM to deliver visible margin expansion and earnings growth once demand normalizes.
Improving fundamentals, including normalizing semiconductor inventories and potential content gains in upcoming smartphone cycles, are seen as underappreciated drivers of a multi year recovery in revenue and free cash flow.
Upgrades to Outperform ratings and higher price targets from prior conservative levels suggest a belief that recent share price weakness has overdiscounted cyclical risks and created a more attractive entry point.

Bearish Takeaways

Bearish analysts highlight that STM's gross margin trajectory into 2026 could remain pressured, limiting operating leverage and constraining upside to earnings versus prior cycles.
There is concern that the revenue recovery is more muted than earlier hoped, particularly in analog and industrial pockets. This could delay a sustained re rating of the shares.
More cautious views emphasize that, despite long term opportunities in automotive and industrial markets, execution risk around pricing, mix, and capacity utilization may cap near term valuation multiples.
Neutral stances, including from major houses such as JPMorgan, point to a balanced risk or reward profile, with potential upside from cyclical recovery offset by uncertainty around the pace and durability of that rebound.

What's in the News

Launched the ST25DA C secure NFC chip, the first commercial solution aligned with the latest Matter 1.5 smart home standard. It enables tap to pair onboarding and battery less commissioning for easier, more secure smart home installations, with mass production planned for 2026 (Key Developments).
Introduced new GaNSPIN611 and GaNSPIN612 GaN based smart power ICs that extend high efficiency GaN technology from chargers into home appliance and industrial motor drives up to 400 Watts. These products are designed to reduce system size and cost while meeting stringent EMC and eco design norms (Key Developments).
Expanded the STM32 AI Model Zoo and project support tools to accelerate embedded and edge AI development on STM32 MCUs across wearables, smart cameras, industrial automation, and smart city applications (Key Developments).
Unveiled the high performance STM32V8 MCU family, built on 18nm PCM technology and Arm Cortex M85 cores up to 800 MHz, with early adoption by SpaceX for Starlink satellite laser communication systems and broader availability expected from 2026 (Key Developments).
Revised 2025 outlook to midpoint revenues of about $11.75 billion, implying 22.4% second half over first half growth and signaling an expected market recovery, while continuing to return capital via buybacks totaling 1.51% of shares for $348 million under the current program (Key Developments).

Valuation Changes

Fair Value Estimate edged down slightly to approximately $24.62 from about $24.72 per share, reflecting modestly softer assumptions around the near term recovery.
Discount Rate decreased slightly to about 9.05% from roughly 9.14%, indicating a marginally lower perceived risk profile in the updated model.
Revenue Growth was trimmed marginally to around 8.53% from about 8.56%, signaling only a minor softening in the medium term top line outlook.
Net Profit Margin was nudged higher to approximately 12.81% from about 12.80%, suggesting a very small improvement in long run profitability expectations.
Future P/E was effectively unchanged at about 16.9x versus a prior 16.86x, indicating a stable long term earnings multiple underpinning the valuation.

Leadership in electric vehicles, industrial automation, and AI data center power solutions is fueling design wins, supporting sustained growth and improved margins.
Strategic cost savings, advanced material investments, and local manufacturing initiatives strengthen market share and long-term revenue stability as global demand evolves.
Rising competition in China, inventory imbalances, restructuring challenges, automotive sector volatility, and adverse currency movements could pressure margins and create earnings uncertainty.

Catalysts

About STMicroelectronics

Designs, develops, manufactures, and sells semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific.What are the underlying business or industry changes driving this perspective?

The accelerating adoption of electric vehicles and hybrid cars
especially STMicroelectronics' leadership in silicon carbide (SiC) and smart power solutions
is driving design wins and high-volume programs, positioning the company for significant future revenue growth and margin expansion as EV adoption rates recover and competition stabilizes.
The industrial automation rebound, strengthening general-purpose microcontroller sales, and broad design-in activity across applications like power systems, solar inverters, and data center power solutions (including collaboration with NVIDIA on AI data centers) are reinvigorating top-line growth and improving visibility on sustained future earnings.
The normalization of distribution channel inventories, with genuine end-market demand driving industrial segment growth rather than just inventory replenishment, points to a healthy demand environment that should reduce unused capacity charges and structurally improve gross margins in coming quarters.
The company's ongoing footprint reshaping and cost-base resizing initiatives-expected to deliver substantial annual cost savings by 2027-will improve operational leverage and net margins over the medium term, especially as revenues scale with new product ramps.
Investments in next-generation SiC and GaN, local manufacturing initiatives ("China for China"), and deep engagement with Tier-1 customers/large OEMs position STM to capture incremental market share and support future revenue stability, even as global supply chains diversify and decarbonization efforts fuel long-term demand.

STMicroelectronics Earnings and Revenue Growth

STMicroelectronics Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming STMicroelectronics's revenue will grow by 9.4% annually over the next 3 years.
Analysts assume that profit margins will increase from 5.5% today to 14.1% in 3 years time.
Analysts expect earnings to reach $2.2 billion (and earnings per share of $2.45) by about September 2028, up from $651.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.6 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.5x on those 2028 earnings, down from 34.8x today. This future PE is lower than the current PE for the GB Semiconductor industry at 33.4x.
Analysts expect the number of shares outstanding to decline by 0.75% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.78%, as per the Simply Wall St company report.

STMicroelectronics Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Intensifying competition and price pressure in China-particularly in silicon carbide (SiC) products-could erode margins, especially as Chinese OEMs are increasingly encouraged to use domestically designed and manufactured chips; this threatens revenue growth and profitability due to significant exposure (13–14% of total revenue) to Chinese customers.
Persistent and still-elevated inventory levels across certain product families and geographies indicate lingering demand-supply imbalances, risking future periods of lower sales and margin compression as excess inventory is worked down, potentially lowering earnings and cash flow.
STMicroelectronics is currently undergoing a significant restructuring and manufacturing reshaping program, incurring substantial impairment and restructuring charges; these changes carry execution risk and may result in continued periods of lower manufacturing efficiency and underutilization, impacting net margins.
The automotive segment, a major revenue driver, remains volatile due to macro uncertainty, rapidly shifting demand between battery electric and hybrid vehicles, ongoing changes in global EV adoption projections, as well as customer-specific order fluctuations; this could generate earnings volatility and make long-term growth less predictable.
Sustained foreign exchange headwinds-particularly a weakening US dollar relative to the euro-are materially impacting gross margin and will continue to do so, constraining net earnings and potentially offsetting gains from operational improvements or top-line growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of €25.838 for STMicroelectronics based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €31.05, and the most bearish reporting a price target of just €20.09.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $15.5 billion, earnings will come to $2.2 billion, and it would be trading on a PE ratio of 15.5x, assuming you use a discount rate of 8.8%.
Given the current share price of €21.8, the analyst price target of €25.84 is 15.6% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Analysts Offer Mixed Outlook on STMicroelectronics Amid Modest Valuation Adjustments and New Initiatives