Baird upgrades STMicroelectronics on cycle recovery, margin rebound

Investing.com -- Baird upgraded STMicroelectronics (NYSE: STM) to Outperform and raised its price target to $50 given improving gross margins, signs of a bottom in silicon carbide (SiC) revenue, and a clearer path to recovery in smartphones, industrial and automotive markets.

The firm lifted its second-half 2025 and 2026 estimates, pointing to easing comps and stronger product mix. Gross margin improvement is expected to accelerate in the third quarter as the impact from earlier fab shutdowns fades and utilization rates rise.

Baird noted a 170-basis-point margin drag in Q2 from yield recovery should be fully offset by Q4.

STMicro’s ongoing transition to 300mm wafer production, which made up 42% of output in 2024 and is projected to reach 57% by 2027, is seen driving structural cost improvements. Capex as a share of revenue is also set to decline, offering a depreciation tailwind.

Smartphone-related revenue is expected to get a lift in the second half of 2025, with several hundred million dollars in incremental sales tied to higher content wins.

SiC revenue, which bottomed in Q1, is poised for a 2026 rebound, aided by a joint venture with Sanan Optoelectronics and new design wins with BYD (SZ:002594) and Geely in China EVs.

Market share at Tesla (NASDAQ: TSLA) remains stable in the low 50% range.

Baird also sees upside in data center applications, where STMicro is supplying edge AI and power components, and in satellite, where it is the sole source supplier to SpaceX.

Risks include currency volatility, softening consumer demand, and persistent channel inventories. But at less than 11x 2027 EPS estimates, Baird said STMicro’s valuation remains compelling amid early signs of a broader cycle recovery.

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