ST shines in the sector; Morgan Stanley raises its forecasts for data centres

(Il Sole 24 Ore Radiocor) - Stmicroelectronics is leading the way on the Milan Stock Exchange, buoyed by a broad-based rebound in tech shares and a positive rating from Morgan Stanley: the share price rose by over three points, whilst the sector’s Euro Stoxx index climbed by 1.2 per cent. During the trading session on 29 June, the sector rotation that had previously weighed on tech stocks came to a halt, and buying interest in the sector returned. Furthermore, ST is benefiting from a report by Morgan Stanley, which has raised its target price for the share from €74 to €78, whilst increasing its forecasts for the data centre business.

Ahead of the quarterly results (with figures due on 23 July), analysts say they expect results to be broadly in line with expectations, but believe ‘that full-year forecasts for revenue and margins could be a positive surprise’. According to Morgan Stanley, “the performance of end markets is better than previously expected, in light of comments from both the company and its competitors. Signs of improving pricing, together with a more favourable product mix in the short term, suggest a potential upward revision to full-year guidance on revenue and margins”.

In the short term, analysts have raised their forecasts for the optical components business by 91 per cent, whilst remaining convinced that the real growth spurt will come in the long term. Sales to data centres are forecast to grow at a compound annual growth rate of 77% between 2026 and 2028. ‘Our new revenue estimates for optical components lead us to increase our forecast for combined profits in 2028 for the optical and LEO (Low Earth Orbit) businesses for 2028, bringing it to €1.34 per share ($1.56).” Hence the increase in the target price, whilst the rating remains confirmed at ‘overweight’ (Morgan Stanley had upgraded the stock in March, believing that the market was underestimating the growth potential of the photonics business).