Investing.com -- Shares of French chip materials maker Soitec jumped by 7% in Paris on Friday after BofA Securities upgraded the stock to "buy" from "neutral" and raised its price target to €300 from €152, citing the company's 90%-plus share of the key material used in silicon photonics.
Silicon photonics uses light instead of copper to move data. BofA said optical ports in data centers are growing faster than AI accelerator chips because of rising bandwidth needs, and silicon photonics is growing faster still.
Soitec said in September it expects photonics wafer growth of 2.5 to 3 times in the year ending March 31, 2027.
BofA forecasts photonics wafer revenue growth of 172%, 74% and 57% in fiscal 2027, 2028 and 2029. It said several major customers have signed long-term "take-or-pay" contracts, which commit them to pay whether or not they use the wafers, giving Soitec more visibility on demand.
BofA also expects Soitec to announce a Singapore factory extension in coming months, which it estimated would cost €700 million and add 1 million 300mm wafers a year of capacity.
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BofA raised its earnings-per-share forecasts to €1.61 from €0.08 for fiscal 2027, to €5.57 from €2.65 for fiscal 2028, and to €10.62 from €5.11 for fiscal 2029.
It said its fiscal 2029 forecast is 71% above consensus, because the Street underestimates how much profit margins will widen.
Gross margin hit a low of 16% in fiscal 2026, and BofA forecasts 29%, 39% and 44% over the next three years as photonics wafers, with a contribution margin of about 80% against about 56% for the rest of the business, make up more of sales.
The mobile business is not yet out of the woods but is bottoming this year, BofA said. Customer stocks of Soitec's radio-frequency wafers fell to 1.7 million wafers as of July, and the broker expects that correction to be mostly over by the end of fiscal 2028.
The €300 target rests on a sum-of-the-parts valuation that implies 16 times fiscal 2029 EV/EBITDA for the whole group, below the 21 times it currently trades on. BofA applies 25 times to photonics and 7 to 10 times to other units.
Risks include a slowdown in AI data center spending, other technologies displacing silicon photonics, and weaker smartphone demand.
BofA also noted GlobalWafers' license with Soitec ends in mid-2027, after which it plans to keep producing these wafers. The broker expects its volumes to be small and focused on other wafer types.
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