STMicroelectronics Stock Down 12% in a Month: Buy the Dip or Wait?

Over the same time frame, the stock has also underperformed other industry players such as Texas Instruments Incorporated TXN and Amtech Systems, Inc. ASYS.

Price Performance

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Margin Pressures Remain

The biggest concern is the pace of margin recovery. Second-quarter gross margin was 34.8%. It included about 60 basis points of pressure from manufacturing reshaping costs. Similar costs are expected to continue through the rest of 2026.

STMicroelectronics is still transitioning its manufacturing footprint. The company is moving some silicon production to larger wafer technologies and upgrading its silicon carbide manufacturing. Management said the program will not be completed before the end of 2027. Until then, technology transfers, product qualifications and other transition costs could weigh on margins.

Operating expenses are another headwind. The company now expects 2026 adjusted operating expenses to be slightly above $3.8 billion. Expenses are expected to increase at a low-double-digit rate year over year, partly because of higher employee share award costs and startup expenses.

Personal Electronics Could Weigh on Growth

Personal Electronics remains a weaker area. Although second-quarter revenues increased 20% year over year, management expects the segment to decline at a mid-single-digit rate in both the third and fourth quarters. Full-year growth is expected to remain in the low to mid-single digits.

The company also expects smartphone market weakness to affect demand, particularly in lower-end devices. Higher memory prices are adding to the pressure.

AI Demand Is a Major Catalyst

The biggest opportunity for STMicroelectronics is the rapid expansion of AI infrastructure. Communication Equipment and Computer Peripherals revenues jumped 50% year over year in the second quarter. Growth was driven by optical connectivity, silicon photonics and microcontrollers.

STMicroelectronics now expects data center revenues to exceed $1 billion in 2026. It sees the potential for revenues to surpass $2 billion in 2027 if current demand continues.

The adoption of 800-gigabit and 1.6-terabit optical connectivity could further support growth. STM is benefiting from its microcontroller position and growing exposure to electronic ICs and silicon photonics. Management also indicated that data center products should support gross margin expansion as their contribution increases.

Industrial and Automotive Remain Solid

Industrial demand is another bright spot. Revenues increased 34% year over year in the second quarter, supported by microcontrollers, analog products and power conversion products. STM is seeing opportunities across factory automation, robotics and power infrastructure.

Automotive revenues increased 16% year over year. Growth was supported by application-specific chips and sensors used in electric powertrains, advanced driver assistance systems and conventional vehicles. New design wins across major automotive applications should support growth.

Silicon carbide is also recovering. STM expects its silicon carbide revenues to grow at a double-digit rate in 2026, supported by existing design wins and backlog.

STM’s Bottom Line Improves

STM's earnings estimates for 2026 have increased in the past 30 days. The company is expected to deliver adjusted earnings per share of $1.30 in 2026, compared with the reported figure of 53 cents in 2025. In the past 30 days, earnings have increased for 2026. STM’s top line in 2026 is likely to witness growth of 21.8%.

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On the other hand, Texas Instruments and Amtech Systems’ earnings in the current year are likely to witness a gain of 54.5% and 720% year over year, respectively.

STM Trades at a Discount

STM is trading at a discount on a forward 12-month price-to-sales (P/S) ratio basis. Its forward 12-month P/S ratio stands at 3.02X, lower than the industry.

STM P/S Ratio (Forward 12 Months)

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End Notes

The company’s strong exposure to AI infrastructure, industrial applications, automotive electronics and silicon carbide provides a solid foundation for growth. However, continued manufacturing transition costs, higher operating expenses and weakness in Personal Electronics could keep profitability under pressure in the near term.

Existing shareholders may prefer to hold STM as these growth opportunities could support stronger earnings once the transition progresses and margins improve. New investors, meanwhile, may want to wait for a better entry point, as clearer signs of margin recovery and more stable demand would provide greater confidence in the stock’s growth outlook. The recent pullback makes the valuation more appealing, but the ongoing cost and demand challenges suggest that waiting could be the more prudent approach for fresh positions.

STM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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