We came across a bullish thesis on STMicroelectronics N.V. (NYSE:STM) on Value Investing Subreddit Page by doctormanbearbull. In this article, we will summarize the bulls’ thesis on STM. STMicroelectronics N.V. (NYSE:STM)’s share was trading at $25.28 as of Jan 8th. STM’s trailing and forward P/E were 10.40 and 11.79 respectively according to Yahoo Finance.
An automated manufacturing production line of semiconductor components on an assembly line.
STMicroelectronics (NYSE:STM), a prominent global semiconductor manufacturer, presents a compelling investment opportunity despite facing near-term cyclical challenges in the semiconductor and electric vehicle (EV) markets. Trading at a forward P/E of around 15x, well below the industry average of 18–20x, STM’s current valuation does not reflect its leadership in high-growth areas like silicon carbide (SiC), renewable energy, and industrial automation. The company’s diversified revenue streams across automotive (38%), industrial (32%), and IoT/consumer electronics (30%) sectors offer resilience against cyclicality, positioning STM for significant value appreciation over the next 3–5 years. The recent downturn in revenues and squeezed margins in Q3/2024, driven by weaker demand in the semiconductor industry and EV sector, appears to be an overreaction, providing a promising entry point for investors.
STM’s standout segment is its SiC leadership, crucial for high-efficiency power electronics in EVs, renewable energy, and industrial applications. The SiC market is projected to grow at a CAGR of 20–25%, reaching $10–15 billion by 2030, and STM’s 200mm SiC wafer production gives it a cost and scaling advantage over competitors like Wolfspeed. With major customers such as Tesla, BYD, and European automakers, STM is well-positioned to benefit from the strong demand in these sectors. Additionally, the growing adoption of EVs is expected to increase semiconductor content per vehicle, a trend that will drive further growth in STM’s automotive segment, including SiC-based powertrain modules and advanced driver assistance systems (ADAS).
The company also stands to benefit from long-term trends in renewable energy and industrial automation, with its SiC solutions used in solar inverters, wind turbines, energy storage systems, and robotics. As global decarbonization efforts and energy efficiency regulations continue to unfold, STM’s microcontrollers and power solutions are set to see rising demand. Financially, STM has a strong position, with a consistent revenue growth rate of around 8–10% over the past five years. Although its margins have been temporarily impacted by underutilized capacity, they are expected to recover to 47–50% by 2026, supported by SiC scaling and an improved product mix.
Risks include competition from peers like Infineon and NXP, execution challenges in scaling SiC production, and geopolitical uncertainties, particularly with exposure to China. However, STM’s diversified revenue streams and conservative financial strategy offer downside protection. With a current intrinsic value of around $48 per share, representing a 102% upside from its current price of $24.30, STM presents an attractive risk/reward profile. In an upside scenario, a faster recovery in EV sales or SiC outperformance could push the intrinsic value to $55–60 per share, further boosting its stock price as market sentiment improves.
STMicroelectronics N.V. (NYSE:STM) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 18 hedge fund portfolios held STM at the end of the third quarter which was 16 in the previous quarter. While we acknowledge the risk and potential of STM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than STM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.