$STM

The market spent most of 2024-2025 pricing STM as a structurally impaired industrial and automotive chip supplier. Q1 2025 revenues fell 27.3% year-over-year to $2.52 billion, operating margin collapsed to 0.1%, and the stock hit a 52-week low of $21.11 (per company 6-K filings and market data). That trough now looks to be behind the company. Q2 2025 revenues of $2.77 billion beat the guidance midpoint by $56 million, with automotive up 14% sequentially and industrial book-to-bill remaining above one (per ST Q2 2025 press release, July 2025). The recovery has since accelerated: Q2 2026 revenues of $3.49 billion rose 23% year-over-year, net income swung from a loss of $97 million to a gain of $222 million, and free cash flow turned positive at $75 million versus negative $152 million a year earlier (per ST Q2 2026 6-K and Investing.com transcript, July 2026). The most important new development is the data center and AI optical interconnect ramp. Management raised data center revenue guidance to above $1 billion for full-year 2026 and above $2 billion for 2027, driven by silicon photonics and cloud optical interconnect products being manufactured at the Crolles 300mm fab (per Q2 2026 earnings call transcript, Motley Fool, July 2026). Communication equipment and computer peripherals are guided to grow close to 60% year-over-year in Q3 2026 and approximately 90% in Q4 2026 (per Alpha-Sense Q2 2026 earnings summary). This is a segment that barely existed in STM's revenue mix two years ago and is not yet fully reflected in sell-side models. On the margin side, Q3 2026 gross margin is guided at approximately 37%, up from 33.5% at the trough, with management flagging that closing two 200mm and two 150mm fabs by end-2027 to early 2028 should add 400+ basis points to gross margin (per Citi TMT conference summary via Quartr). The company-wide restructuring program targets annual cost savings in the high triple-digit million-dollar range exiting 2027 (per ST Q1 2025 press release). Silicon carbide revenues are guided to grow double-digit in 2026 versus 2025, supported by the ramp of the new 200mm SiC facility in Catania, Italy (per Q2 2026 6-K and earnings call). For the bull case to work, three things must be true: (1) Q3 and Q4 2026 revenues track or exceed guidance ($3.7 billion and above $4 billion respectively), validating the data center ramp; (2) gross margin continues to expand toward the mid-40s as older fabs are closed; and (3) the automotive and industrial recovery remains durable, with SiC design wins converting to volume. The consensus forward P/E of approximately 20x (per Yahoo Finance, current) and a forward EV/EBITDA of roughly 13x on 2027 estimates (per MarketScreener) are not demanding multiples for a company with a credible path back to mid-teens operating margins.