Earnings Report: AI Boost Fails to Save STMicroelectronics as Q3 Outlook Disappoints, Stock Plunges Over 14% Pre-Market

European chip giant STMicroelectronics (STM-US) released its second-quarter (ended June 27) earnings report on Thursday (23rd) ahead of U.S. market open. Despite beating revenue expectations and raising its data center outlook again, the company's core profit significantly missed market forecasts, and its third-quarter guidance failed to meet investor expectations for the pace of recovery, causing its Milan-listed shares to drop over 15% and its U.S. ADRs to plunge more than 14%.

At press time, STMicroelectronics' U.S.-listed shares were down 14.14% pre-market, temporarily trading at $56.47 per share.

STMicroelectronics' Q2 revenue rose 26% year-on-year to $3.49 billion, exceeding both the company's initial forecast of $3.45 billion and analyst expectations of $3.47 billion, driven by demand in communications equipment, computer peripherals, and automotive chips. The company swung from a net loss of $97 million a year earlier to a net profit of $222 million, also surpassing the market forecast of $209.9 million.

Figure: STMicroelectronics Earnings

However, Q2 EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) came in at only $679 million, far below the market estimate of $797.7 million. The company attributed the profit shortfall to asset impairments, restructuring and product phase-out costs, and accounting impacts from the acquisition of NXP (NXPI-US) sensor business.

STMicroelectronics forecasts Q3 (current quarter) revenue of approximately $3.7 billion, plus or minus 3.5%, slightly below market expectations of $3.72 billion to $3.75 billion. Jefferies analysts believe the disappointing guidance may be linked to slower-than-expected iPhone 18 component demand. Citigroup noted that the stock has already priced in significant growth expectations this year, and without upward revisions to profit forecasts, short-term performance may remain under pressure.

Nonetheless, CEO Jean-Marc Chery stated that orders across all end markets have clearly increased, with supply tightness emerging for certain products. The company expects Q4 revenue to exceed $4 billion, primarily driven by artificial intelligence (AI) data center and low Earth orbit satellite communication customer programs.

STMicroelectronics has once again raised its data center revenue target, forecasting over $1 billion in 2026 and well above $2 billion in 2027. The space-related equipment business is expected to generate revenue well above $3 billion between 2026 and 2028, not yet including potential opportunities from orbital data centers.

STMicroelectronics is a supplier to Apple (AAPL-US), Tesla (TSLA-US), and SpaceX (SPCX-US), with over a decade of collaboration with SpaceX. AI and space businesses are seen as key growth pillars to reduce reliance on automotive chips. However, JPMorgan believes that after the company issued optimistic signals in June, market expectations have already been elevated, and investors will need to see more evidence of gross margin improvement before aggressively bidding up the stock again.