Strong data center demand prompts Morgan Stanley to upgrade STMicroelectronics stock rating

LootboxPhobia · 2026-03-26T17:21:24+00:00

Morgan Stanley upgrades STMicroelectronics' rating from "Hold" to "Overweight," with a target price raised from €24 to €36, due to increasing data center demand and a recovery in the industrial market. The company’s data center revenue is expected to grow rapidly, reaching $2.52 billion by 2028, and the revenue forecasts for the coming years have been increased.

LootboxPhobia

2026-03-26 17:21:24

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Investing.com - Morgan Stanley upgraded STMicroelectronics from “Hold” to “Overweight” on Thursday, raising the target price from €24 to €36 due to surging data center demand and early signs of recovery in the industrial market.

As of Wednesday, the Swiss-listed chipmaker’s stock traded at €28.74 on the Paris Exchange.

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The broker expects STMicroelectronics to generate $560 million in data center-related revenue in fiscal 2026, rising to $1.67 billion in 2027 and $2.52 billion in 2028, with a compound annual growth rate of 108% from 2025 to 2028.

“New growth drivers are emerging in the data center sector,” analysts said, highlighting the company’s power semiconductors and photonic integrated circuits as key revenue drivers.

Last week, STMicroelectronics raised its data center revenue guidance at the Morgan Stanley conference, expecting “significantly over €500 million” in 2026 and “far exceeding €1 billion” in 2027, citing opportunities in 800-volt power architectures and optical networking. Management indicated that production of its PIC100 photonic chips is expected to triple by 2027.

Morgan Stanley raised its 2026 revenue estimate by 3% to $13.74 billion and its 2027 estimate by 8% to $15.92 billion, both above market consensus. Adjusted EPS estimates for 2026 were increased by 2% to $1.24, and for 2027 by 23% to $2.26.

Using a valuation of 18 times the 2027 EPS estimate of €1.95, the target price is set at €36. Currently, the stock trades at a P/E ratio of 14.7 based on the 2027 estimated earnings.

Gross margin is expected to rebound from a low in 2025, reaching 35.7% in 2026 and 38.3% in 2027, with adjusted EBIT margins expanding to 9.2% and 14.9%, respectively.

In an optimistic scenario, Morgan Stanley sets a target price of €53, assuming resilient macroeconomic conditions and a gross margin around 40%. In a pessimistic scenario, the target drops to €11, reflecting ongoing macroeconomic weakness and persistent underutilization of capacity.

Along with the rating upgrade, STMicroelectronics is also integrating the NXP MEMS business acquired in February. Morgan Stanley expects this will boost automotive revenue by 11% year-over-year in 2026.

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