PARIS — Shares of STMicroelectronics N.V. (EPA:STMPA) experienced a sharp decline on Thursday, dropping 13.6% to €50.32 as of 11:48 CEST. The sell-off came after the company reported second-quarter EBITDA that came in nearly 15% below analyst expectations, raising concerns about the pace of its recovery despite an upbeat outlook for AI-driven data center demand.
The broader market also felt the pressure, with the STOXX 600 index slipping 0.5% and technology stocks declining 0.8%. STMicroelectronics lagged behind its peers, underscoring investor disappointment with the earnings miss. However, the stock remains up more than 110% year-to-date, reflecting earlier optimism about a faster rebound from the downturn in automotive and industrial sectors.
Rushabh Amin, a portfolio manager at Allspring Global Investments, attributed the broader technology decline to “a slight unwind in sentiment and in positioning,” as quoted by Reuters. The pullback suggests that some of the froth in tech stocks is being tempered by fundamental realities.
STMicroelectronics’ business breakdown reveals that profit strength is concentrated in a few key areas. Embedded processing and RF optical communications together accounted for $409 million of the $721 million year-over-year increase in sales. These two divisions delivered $320 million in operating profit, representing 88% of total net reported segment profit, while accounting for only 46% of revenue.
In contrast, the power and discrete segment continued to weigh on results, reporting a wider operating loss of $99 million compared to a loss of $56 million in the prior period, despite a 3.7% increase in revenue. The segment’s struggles highlight the uneven nature of the recovery across different parts of the business.
Group EBITDA reached $679 million, falling short of the $797.7 million anticipated by analysts. The 15% shortfall exceeded the miss seen in third-quarter sales. ST projected third-quarter revenue of $3.70 billion, slightly below the analyst consensus of $3.72 billion, a difference of just 0.5%.
Chief Executive Jean-Marc Chery reported “strong bookings in all end markets” and noted constrained supply and reduced inventories at distributors. Management is projecting data center revenue to exceed $1 billion this year, with expectations for more than $2 billion in 2027 and fourth-quarter revenue topping $4 billion. This ambitious target underscores the company’s bet on AI infrastructure spending.
Cash metrics showed some improvement. Free cash flow was positive at $75 million, and inventory days declined to 126 from 166, suggesting better working capital management. However, the challenge remains the group’s profit conversion. For the third quarter, the company forecasts a gross margin of 37%, factoring in 70 basis points from unused-capacity charges.
Risks persist. The forecast does not factor in any additional tariff adjustments. Reduced customer demand or decreased factory utilization could impact sales and margins. The fourth quarter will provide another key test, with management anticipating that revenue will get a boost from data centers and low-Earth-orbit satellite projects.