STMicroelectronics Q3 revenue guidance missed market expectations; European stock price plummeted 17% | Earnings Report Insights
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STMicroelectronics' share price suffered a steep drop. Although the company once again raised its full-year AI business revenue forecast and expects further acceleration in growth in the fourth quarter, its third-quarter revenue guidance came in below market expectations, prompting investors to take profits given the high valuation.
On Thursday, STMicroelectronics announced its earnings report for the second quarter of 2026, forecasting third-quarter revenue of around $3.7 billion (midpoint of guidance), below the Bloomberg analyst consensus of $3.9 billion. As a result, the company’s shares in European markets plummeted as much as 17% during trading, marking the largest single-day drop since July 2025.
Management remains confident about the outlook for full-year growth. CEO Jean-Marc Chery stated that fourth-quarter revenue will surpass $4 billion, up over 20% year-on-year, mainly driven by demand for AI data centers and low-earth orbit satellite communications; at the same time, the company raised its 2026 AI-related business revenue guidance to over $1 billion, and expects to far exceed $2 billion in 2027.
Guidance fails to further whet the market's imagination amid high expectations
While the third-quarter revenue guidance missed market expectations, profitability remained robust. The company expects a third-quarter gross margin of around 37%, slightly higher than analysts’ forecast of 36.76%, indicating continued improvement in product mix.
What truly disappointed the market was the growth pace.
Driven by rapid expansion of the AI data center business, STMicroelectronics' share price has soared about 119% so far this year, with the market already pricing in high growth. In June, the company also completed a $1.5 billion convertible bond issuance while the stock was at a high level.
Citigroup analyst Andrew Gardiner and his colleagues stated in a report that the financial results show recovery in end-markets such as automotive and industrial continues, and the AI and data center business maintains rapid growth; however, market expectations and valuations have risen in tandem. With little room left for further earnings forecast upgrades, the share price faces short-term correction pressure.
AI data centers become the core growth engine
Ongoing expansion in AI infrastructure is becoming the most important growth engine for STMicroelectronics.
As the power density of AI servers continues to rise, data centers’ demand for power management, power devices, and connectivity chips has been growing. Bloomberg industry research analyst Charles Shum previously pointed out that increasing rack power in AI is driving a new growth cycle for STMicroelectronics' power semiconductor demand.
Chery stated that the company’s growth will accelerate further in the fourth quarter, mainly thanks to long-term collaboration projects in AI data centers and low-earth orbit satellite communications. Earlier this year, STMicroelectronics signed a power management chip supply agreement with Amazon AWS. Chery previously said the contract would continue contributing revenue for the next three to five years.
It is worth noting that the company gave its first standalone AI business revenue guidance in April this year, then nearly doubled its full-year forecast in June, and has now raised it further to over $1 billion, reflecting that the pace of AI business growth continues to exceed management's previous expectations.
Automotive and consumer electronics recovery lags, traditional business under pressure
Despite the rapid growth of the AI business, traditional business has yet to shake off its sluggish state.
As a key chip supplier for companies like Tesla and Apple, STMicroelectronics has faced dual pressures over the past two years from tepid demand in automotive and consumer electronics, as well as slow inventory reduction on the client side, leading to a sluggish recovery of traditional business.
Against this backdrop, in recent years Chery has actively advanced strategic transformation, reducing reliance on the automotive and consumer electronics market, and shifting focus towards high-growth areas such as AI data centers, industrial power, and communications. Currently, the AI business is gradually becoming the company's new growth engine.
From an industry-wide perspective, the mature process chip market is showing signs of recovery. Texas Instruments’ latest revenue guidance beat expectations, with demand rebounding in industrials, automotive, and data centers. However, as its share price had already risen about 70% to date, post-earnings the stock still retreated after-hours, reflecting the common valuation dilemma for the semiconductor sector: earnings are decent, but the market expects more.
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