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This is a follow-up to my December 2023 DD, which you can find here: https://reddit.com/r/stocks/comments/189qrsw/stmicroelectronics_stm_is_one_of_the_best_and/
**My original thesis**
Back in late 2023, STM had been trading at ~7-9x earnings despite 47% gross margins, $1B+ quarterly net income, and exposure to EVs, industrial automation, and edge AI. My view was that the market was treating it like a cyclical that would eventually revert back to its old low-margin business, whereas the new EV and renewable-powered world we were moving towards would clearly fundamentally change the business going forward. Additionally, Europe was/is just broadly undervalued in my book.
STM makes chips for automotive, energy, industrial mainly, plus personal electronics, sensors, etc. (so not CPUs or GPUs like NVDA or Intel, instead their competitors are ON Semi, Infineon, etc.). Among their clients you can find Apple, Tesla, Google, META, SpaceX, Huawei, Stellantis, BYD, BMW, Airbus + a myriad of others.
**What happened**
Between my last optimistic DD and now, revenue fell from $17.3B in 2023 to $11.8B in 2025. Net income basically disappeared (from around $4B net income to... $37M... yes million you read that right...). Auto did terribly all around, EV adoption slowed, Chinese silicon carbide competition crushed pricing, and STM built capacity ahead of demand (massive capex during the auto chips shortage years and right after), which also led them a restructuring plan that's been ongoing since 2025 to reshape their manufacturing cost base.
**What STM is becoming**
A lot of investors still think of STM as an auto chip company. Increasingly, that's not the story. My thesis has fundamentally changed in several ways and for the better.
1. STM became a dominant space chip company
STM now has something like 90% market share in LEO (low earth orbit) satellite semiconductors. Their RF chips are in billions of Starlink components - over 10,000 satellites and millions of user terminals. That business went from essentially zero ($175M in 2021) to close to $1 billion in 2026, and they've publicly committed to over $3 billion cumulative revenue through 2028. I mentioned them being a major Space X supplier in my last DD but I honestly hadn't realised how big (and hyped) this could get back then.
2. Silicon photonics
STM entered high-volume production of silicon photonics modules in early 2026. For the non-technical: photonics moves data using light instead of electricity. Inside an AI datacenter, it uses much less power per bit than copper interconnects. That matters a lot in a world where the biggest constraint on building new AI datacenters is literally not having enough electricity. Management recently said the company is poised to be the main growth story of this segment worldwide, anticipating moving from 5% market share today to 30% in the next few years.
3. The Amazon Web Services deal
In February 2026, Amazon Web Services signed a multi-year, multi-billion dollar deal with STM covering silicon photonics, power management chips, microcontrollers, and analog components. AWS also took warrants for 24.8 million STM shares vesting in tranches tied to actual chip purchases. AWS has to keep buying STM chips to unlock its own equity position (about 2.7% of the company if they get all the equity over the next 7 years or so). That's not a customer relationship, it's a strategic alignment structure. The world's largest cloud provider has financially committed to STM's success.
**STM is being re-rated as an AI company. This is increasingly backed by by hard evidence**
The reason I'm revisiting the thesis finally today after thinking about doing this for a while, is that yesterday STM increased its 2026 datacenter revenue outlook from "well above $500M" to roughly $1B. The 2027 target moved from "well above $1B" to around $2B. Management specifically cited stronger AI infrastructure demand and faster capacity ramping.
Companies don't usually raise guidance mid-quarter unless business is tracking well ahead of expectations. More importantly, these datacenter products carry significantly higher margins than the current company average, so this isn't just a revenue story. It's potentially the path back to much higher profitability.
If the expected SpaceX IPO happens, STM's role in the Starlink ecosystem should becomes a lot more visible to the broader market. SpaceX has discussed extremely ambitious plans around space-based computing infrastructure. Whether that becomes reality or not, STM would likely be one of the key semiconductor suppliers if it does.
STM is also positioning its sensors, MCUs, image sensors, and motor control products as the hardware layer for robotics and autonomous systems. Revenue is small today, but I'm convinced their strategic positioning on this is likely to pay off big time, much like many of the other decisions they've made in the past that are starting to pay off big time today.
What's changed is that the story is no longer mainly about automotive or a cyclical recovery. It's increasingly about STM's position in AI infrastructure, power efficiency, silicon photonics, and potentially space-based computing.