Infineon and STMicroelectronics: Data Center and Space Assets Driving a Re-rating

Core Conclusion

A cyclical recovery provides a margin of safety, but the real re-rating impetus comes from structural growth engines the market has yet to fully price in. Infineon’s per-rack power semiconductor content for AI data centers has been materially revised up, while STMicroelectronics is forming distinct growth poles in optical interconnects and LEO satellites. Despite Infineon rising 100% and STMicro 147% year-to-date, we believe hidden assets revealed through sum-of-the-parts valuation still support further re-rating. We raise our target price on Infineon to €91 and STMicro to €74.

What the Market May Be Underestimating

Investors are still valuing both companies through a traditional analog cycle lens, failing to reflect their business bifurcation characteristics. In Infineon’s full-stack data center power solutions, Gallium Nitride (GaN) penetration into intermediate bus converters, combined with demand for lateral voltage regulator modules driven by incremental CPU loads from agentic AI, has already lifted the per-rack power semiconductor value to US$170 per kilowatt. STMicro’s optical transceiver and LEO satellite user terminal businesses are benefiting from data center network transitions from copper to silicon photonics, and a 52% CAGR in user terminals from 2026 to 2028. These two asset types possess long-term structural growth and should command independent premiums.

Evidence Chain

Upward revision in Infineon power semiconductor value. We have revised up power semiconductor content assumptions for the Rubin Ultra and Feynman platforms, primarily driven by incremental CPU loads from agentic AI pushing up demand for voltage regulator modules, while GaN adoption in intermediate bus converters expands. Accordingly, the forward P/E for the data center business is raised to 50x, still at a discount to monolithic power system peers; the core cyclical business P/E is raised to 24x, in line with peak analog industry valuations.

Independent valuation of STMicro optical and satellite assets. We separate the optical interconnect and LEO satellite businesses into independent valuation units, applying a 36x P/E based on estimated 2028 earnings, reflecting the data center optical module upgrade cycle and high satellite user terminal growth. The core business maintains an 18x cyclical P/E. Sum-of-the-parts valuation lifts the target price to €74; the market’s prior approach of pricing it as a single cyclical entity was clearly inefficient.

Cyclical recovery strengthening the foundation. Both companies confirmed declining customer inventories, shortening lead times, and rebounding order volumes in Q2, in sync with improving signals across global analog peers. The inauguration of Infineon’s Dresden smart power fab on July 1 is expected to showcase manufacturing capabilities and potentially provide a data center revenue guidance update, serving as a near-term catalyst.

LEO satellite revenue raised. The FY2027 LEO revenue estimate is raised from US$1.08bn to US$1.25bn, primarily due to higher-than-expected user terminal growth, confirming the business has entered a scale-up phase.

Key Debates and Risks

The market doubts the sustainability of the data center power and satellite businesses. If hyperscalers cut AI capex, or Infineon loses share in power management ICs, the data center premium would contract. STMicro’s LEO projects rely on a concentrated customer base, and technology iterations could quickly drive down terminal pricing. Additionally, macroeconomic weakness would delay the recovery in auto and industrial demand, weighing on core business valuation multiples.

Valuation and Trading Implications