STM Stock Is Gaining From the Smart Driving Trend

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STMicroelectronics Stock Marches Higher

Picture a “Ford Model T” or a 1973 “Chevy.” Now compare them to today’s “Tesla” or the upcoming “Faraday Future.”

Technology has transformed automobiles in ways we could not have imagined a few decades ago.

One of the main drivers of this change has been electronic components called semiconductors. Popularly known as chips, they are the building blocks of modern electronic systems.

From our smartphones and connected devices to smart homes and electric cars, chips are everywhere. And one company that is leading in this space is STMicroelectronics NV (NYSE:STM).

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With its broad array of semiconductor products, STMicroelectronics supplies more than 100,000 customers across a vast spectrum of electronics applications.

Its major customers include Apple Inc. (NASDAQ:AAPL), Robert Bosch GmbH, Cisco Systems, Inc. (NASDAQ:CSCO), Huawei Technologies Co., Ltd, Nintendo Co., Ltd (OTCMKTS:NTDOY), Samsung Electronics Co Ltd (OTCMKTS:SSNLF), Seagate Technology PLC (NASDAQ:STX), and Western Digital Corp (NASDAQ:WDC).

Recent developments in automotive technology have been made possible by semiconductors. As cars become more complex, the demand for automotive chips will continue to rise. This bodes well for STM stock.

According to a report published by MarketsandMarkets Research Private Ltd., the automotive semiconductor market is likely to reach almost $48.8 billion by 2022. (Source: “Automotive Semiconductor Market worth 48.78 Billion USD by 2022,” MarketsandMarkets Research Private Ltd., last accessed May 31, 2018.)

STMicroelectronics is in a great position to gain from this trend. It is among the world’s largest semiconductor companies, and its chips are vital to “Smart Driving” and the Internet of Things.

The Internet of Things is a network of physical devices, vehicles, and home appliances that can connect and exchange data with each other. This has been made possible because of semiconductors.

STMicroelectronics recently announced its latest security techniques in a single chip to protect smart objects and networks from cyber threats.

Hence, not only are the company’s products enabling Smart Driving and making vehicles safer and more connected, they focus on protection from cyberattacks. This is a market with huge growth potential.

STMicroelectronics reported first-quarter 2018 results in April. Revenues grew by 22.2% through the year to $2.2 billion. All the product groups reported strong growth. Gross margins also went up to an impressive 39.9%. (Source: “STMicroelectronics Reports 2018 First Quarter Financial Results,” STMicroelectronics, April 25, 2018.)

The growing business has been good for the STM stock price. STMicroelectronics stock has gone up by about 40% in the last year and almost 200% over the last five years.

stm stock chart

Chart courtesy of StockCharts.com

Analyst Take

We are moving fast toward a smarter future. This will likely mean more and more reliance on sophisticated chips. STMicroelectronics is a dominating player that builds such chips.

The company has been able to achieve growth in revenue and margin through its focus on Smart Driving and the Internet of Things.

Investors who want to take advantage of the technological trends should not ignore the opportunity in STM stock.