AI demand is solid, but the stock price plunges: Analog chip leader falls into the "high expectations trap"

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The analog semiconductor industry is currently facing a valuation dilemma of "the better the performance, the higher the expectations." Texas Instruments and STMicroelectronics both released strong second-quarter financial reports, but both companies' stock prices were sold off after the reports, reflecting a common dilemma in the current semiconductor sector: strong results alone are no longer enough to support lofty valuations; what the market needs are unexpected positive surprises.

STMicroelectronics was hit particularly hard. The company's third-quarter revenue guidance median is about $3.7 billion, lower than the Bloomberg analyst consensus of $3.9 billion, and its shares plunged as much as 17% during European trading, marking its biggest single-day drop since July 2025. Texas Instruments shares dropped about 3% during U.S. trading, despite beating market expectations for both its second-quarter results and third-quarter guidance.

Both companies' stocks had already recorded large gains beforehand—STMicroelectronics was up about 119% this year, and Texas Instruments about 60%—with high valuations leaving the market's tolerance for any blemish near zero. This situation shows that short-term risks in the analog semiconductor sector have shifted from fundamentals to expectations management.

Solid results, but guidance is the market focus

Both companies posted robust Q2 financial data.

Texas Instruments' adjusted earnings per share jumped 52% year-on-year to $2.14, beating market expectations of $1.94; revenue rose 23% to $5.46 billion, also exceeding analysts' forecast of $5.26 billion. Third-quarter profit and revenue guidance midpoints also surpassed expectations.

STMicroelectronics' adjusted earnings per share more than doubled to $0.31, and revenue grew 26% to $3.49 billion, both slightly above analysts' expectations.

However, details in both companies’ guidance triggered market concerns. STMicroelectronics' third-quarter revenue guidance was below expectations and indicated that its personal consumer electronics business would perform below seasonal norms. Texas Instruments CFO Rafael Lizardi told analysts that capital expenditure could end up at the higher end of the $2–3 billion guidance range, dampening expectations for free cash flow improvements.

Cantor analyst Matthew Prisco pointed out that Texas Instruments was already a concentrated long position for the market, coupled with high baseline expectations. "Given seasonally guided (about +8% quarter-over-quarter) pricing, data center, and cyclical tailwinds, the post-market selloff is reasonable," and he emphasized that the company’s capital expenditure outlook pressures cash flow inflection expectations.

AI data centers become core growth engine

Although short-term stock prices are under pressure, both companies show a common thread of strong demand from AI infrastructure.

STMicroelectronics CEO Jean-Marc Chery stated that fourth-quarter revenue will exceed $4 billion, up over 20% year-on-year, mainly driven by AI data centers and low-orbit satellite communications. The company raised its 2026 AI-related business revenue forecast to over $1 billion and expects it to far exceed $2 billion in 2027—this is the company’s second significant upward revision since first providing separate AI business guidance in April this year.

Texas Instruments likewise reported rapid growth in data center demand, with industrial sales up at least 30% and automotive business also recording double-digit growth.

Bloomberg Intelligence analyst Charles Shum previously pointed out that continuous increases in AI rack power are driving STMicroelectronics' power semiconductor demand into a new growth cycle. According to Chery, the power management chip supply agreement between STMicroelectronics and Amazon AWS will continue to contribute income over the next three to five years.

High valuations a common risk in the sector

The market reaction to the two companies reveals a deeper structural contradiction in today’s analog semiconductor sector.

STMicroelectronics shares have cumulatively risen about 119% this year, and in June the company took advantage of high share prices to issue $1.5 billion in convertible bonds; Texas Instruments’ shares have also risen about 60% this year. Such surges mean the market has already priced in a significant degree of optimism, so any guidance falling short of expectations may trigger profit-taking.

UBS analyst Francois-Xavier Bouvignies said that STMicroelectronics shares have already risen 35% over the past three months. "We believe that, without a substantial upwards revision in results, today will put relative pressure on the stock."

From an industry-wide perspective, the recovery trend in analog semiconductors’ fundamentals has not changed, with AI infrastructure, industrial, and automotive demand all warming up. But with valuations having fully reflected an optimistic scenario, investor sensitivity to growth momentum has risen noticeably: meeting expectations is no longer enough, and the market now requires continual outperformance.

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