STMicroelectronics (STM): A Semiconductor Supplier With Two Powerful Growth Engines
STMicroelectronics (STM) is finding itself in an enviable position. The company supplies critical semiconductor components to two rapidly expanding markets, data centers and satellite communications, and both businesses could become substantially larger over the next several years.
Unlike chipmakers focused on the processors that train and run AI models, STMicro supplies many of the components that make the surrounding infrastructure work. Its products handle applications including power conversion, thermal management and optical connectivity, the technology that allows servers inside data centers to communicate with one another.
That data center business is growing quickly. Management expects the segment to generate $1 billion in revenue in 2026 and more than double that figure in 2027. That’s meaningful for a company that generated $11.8 billion in total revenue last year, and it gives STMicro a sizable new growth engine outside its more traditional semiconductor markets.
The opportunity in space could be even more interesting.
STMicro has supplied chips for space applications since the 1970s, but its partnership with SpaceX has significantly increased revenue in recent quarters. The company makes radio-frequency chips that help steer beams toward Starlink satellites, along with specialized chips used inside the satellites themselves and in ground equipment.
SpaceX is preparing for a dramatic expansion of the Starlink network. It had approximately 10,200 satellites in orbit at the end of the second quarter, and Elon Musk has said the company plans to launch “an order of magnitude more” V3 satellites than V2 satellites. That suggests as many as 100,000 additional satellites could enter orbit over the next several years.
STMicro already expects its SpaceX-related revenue to total $3 billion between 2026 and 2028. And that forecast doesn’t include potential upside from SpaceX’s plans to begin launching orbital data centers as soon as next year.
The broader growth outlook is encouraging as well. At its 2024 Capital Markets Day, STMicro guided for $18 billion in revenue by 2028. With data center and space demand developing faster than anticipated, we see a reasonable opportunity for the company to outperform that target. Higher chip demand should also allow STMicro to make better use of its manufacturing capacity, potentially improving gross margins and operating income along the way.
The stock trades around $52 per share, with a market capitalization of roughly $47 billion. At approximately 37 times forward earnings estimates, it isn’t particularly cheap based on today’s profits. But earnings per share are expected to nearly triple between 2026 and 2028, which would bring that valuation down considerably as earnings catch up.
There is some cyclicality to keep in mind. Semiconductor stocks often see their earnings multiples contract as profits approach a cyclical peak, so investors shouldn’t assume that a near-tripling of earnings will translate into an equivalent increase in the share price.
Still, we like the setup. STMicro is benefiting from two separate infrastructure expansions, with its data center revenue expected to more than double next year and its SpaceX business expected to generate $3 billion between 2026 and 2028.
For investors interested in the enormous spending going into data centers and satellite connectivity, we think STMicroelectronics offers an attractive way to participate as a critical supplier rather than betting everything on one end market or one high-profile customer.
