Investing.com -- Bank of America upgraded STMicroelectronics (EPA: STMPA) (NYSE: STM) shares to Buy from Neutral on Tuesday, setting a Street-high price target of €86/$100, arguing the market is underestimating the chipmaker’s earnings power over the next two to three years.

The stock rose 2.5% in Paris trading by 08:14 GMT.

Analysts led by Didier Scemama cited four key drivers behind the upgrade: a growing position in optical interconnects for data centers, exposure to the expanding low-earth orbit (LEO) satellite market, a nascent recovery in automotive and industrial demand, and “substantial operating leverage owing to its considerable spare capacity.”

"We think the market materially underestimates STM’s earnings power over the course of the next 2-3 years," they wrote, modeling EPS of $1.57, $3.53, and $4.63 for 2026, 2027, and 2028, respectively — 30% to 43% above consensus across the three years.

STM’s optical interconnect business is a key driver for BofA’s bull case. The bank expects it to grow from $670 million this year to $2.3 billion by 2028, driven by the company’s 300mm silicon photonics manufacturing, specialty processes, and advanced packaging technology.

The analysts see STM’s market share in silicon photonics expanding from around 5% currently to more than 30% over the next three years, with Amazon Web Services as the anchor customer and further diversification expected.

On LEO satellites, where STM currently holds roughly 90% market share, BofA forecasts cumulative revenues of $3.6 billion between 2026 and 2028, above the company’s own guidance of $3 billion or more, pointing to “higher number of satellite launches, customer diversification and higher content.”

“Our new forecasts do not assume revenues from datacenters in space, which we expect to benefit towards the end of the decade given their CPO capabilities,” the analysts added.

BofA also sees gross margins expanding significantly, from 37.3% this year to 46% by 2028, well ahead of consensus estimates of 43.3%, as unused capacity charges fall, pricing improves, and higher-margin businesses scale up.

The new price target of €86 is based on 13x 2028 EV/EBITDA, at the upper end of the stock’s historical range but still at a 12% discount to diversified semiconductor peers trading at 14.8x, BofA said.

"STM is currently trading at a 32% discount to diversified peers on 2028E EV/EBITDA; we do not believe such a deep discount is justified," the analysts said.