STMicroelectronics STM shares have plunged 50.2% in 2024 against the Zacks Semiconductor-General industry and the Zacks Computer & Technology sector’s return of 119% and 30.4%, respectively.
Over the same time frame, it lagged behind its industry peers, including NVIDIA NVDA and Amtech Systems ASYS. In 2024, shares of NVDA and ASYS have climbed 171.1% and 29.7%, respectively.
The pessimism surrounding the stock can be attributed to the continued softness in the automotive and industrial end markets, which is hurting STMicroelectronics’ overall financial performance. Customers’ decisions to move from fully battery electric vehicles (EVs) to hybrids and from premium to economy models also demonstrate a clear shift in consumer preferences.
Nonetheless, the business has been spreading its holdings throughout the industrial and automotive sectors to direct long-term growth.
STMicroelectronics N.V. Price and Consensus
STMicroelectronics N.V. price-consensus-chart | STMicroelectronics N.V. Quote
Portfolio Expansion in Industrial Market Aids STM’s Growth
STMicroelectronics’ sustained focus on strengthening its industrial market portfolio is likely to drive growth for the company over the long run. Recently, it unveiled the EVLDRIVE101-HPD motor-drive reference design. It is a circular PCB with a diameter of just 50mm that houses a 750W power stage, STM32G0 microcontroller, and 3-phase gate driver. Robots, drones and drives for industrial machinery like pumps and process automation systems can all be easily equipped with this design.
The company is also continuously advancing its STM32 microcontroller. The new ultra-low-power STM32 MCUs, which can minimize energy consumption by up to 50%, are advantageous for the industrial end. It makes it possible for designs that make use of energy-harvesting technologies, such as solar cells, to operate without batteries by reducing the impact of discarded batteries and the frequency of battery replacements.
In order to streamline the development of next-generation wireless solutions for consumer and industrial Internet of Things (IoT) applications, STMicroelectronics unveiled the first product of its strategic partnership with QUALCOMM Incorporated QCOM. The partnership intends to provide IoT modules initially by utilizing QUALCOMM’s industry-leading wireless connectivity solutions and STM’s robust STM32 ecosystem.
Easily integrated with any STM32 microcontroller (MCU) or microprocessor (MPU), the first of these modules, the ST67W611M1, has a Qualcomm QCC743 multiprotocol connectivity system-on-a-chip (SoC) pre-loaded with Wi-Fi6, Bluetooth 5.3 qualified, and Thread combo. For future-proof connectivity, the module will support the Matter protocol over Wi-Fi, enabling the STM32 portfolio to be easily accessed by the Matter ecosystem.
Automotive Market to Boost STM’s Long-Term Prospects
As the next step in their strategic partnership, Ampere announced a multi-year agreement with STMicroelectronics and Renault Group on the supply of Silicon Carbide (SiC) power modules, starting in 2026. This agreement is part of their collaboration on a powerbox for the inverter for Ampere’s ultra-efficient electric powertrain. Utilizing Ampere’s knowledge of EV technology and STMicroelectronics’ knowledge of advanced power electronics, the two companies collaborated to optimize the power module, a crucial component of the powerbox, for the e-powertrain’s maximum performance and competitiveness.
The fourth generation STPOWER SiC MOSFET technology was recently introduced by STMicroelectronics. In terms of robustness, power density and efficiency, Generation 4 technology sets new standards. The new technology is specifically tailored for traction inverters, the essential part of EV powertrains while meeting the demands of the automotive and industrial markets. As part of its dedication to innovation, the company intends to launch more sophisticated SiC technology advancements through 2027.
STM’s Q4 and FY24 Guidance Not So Bright
STM projects midpoint revenues for the fourth quarter of 2024 to be $3.32 billion, indicating a 22.4% year-over-year decrease. The Zacks Consensus Estimate for the top line is also pegged at $3.32 billion. At the midpoint, the gross margin is anticipated to be roughly 38%, impacted negatively by about 400 basis points, mainly due to the product mix, sales price and higher unused capacity charges. The consensus mark for earnings is pegged at 35 cents per share, down 18.6% in the past 30 days. This indicates a year-over-year decline of 69.3%.
Revenues for 2024 are predicted to be $13.27 billion, suggesting a decrease of roughly 23.2% from the previous year. This decline is mostly attributable to lower Automotive and Industrial revenues, which are somewhat offset by slightly higher Personal Electronics revenues. The consensus mark for revenues is pinned at $13.27 billion.
The consensus mark for earnings is pegged at $1.65 per share, unchanged over the past 60 days, indicating a fall of 63% year over year.
The gross margin is expected to be about 39.4%, negatively impacted by approximately 290 basis points due to unused capacity charges.
STMicroelectronics formerly stated that it anticipates the Automotive end market to grow less than expected in the second half of the year compared to the first half and the Industrial end market to recover more slowly than expected.
Conclusion: Sell STM Stock for Now
Increasing efforts to set itself apart in the market through innovative product launches is a testament to STMicroelectronics’ long-term growth potential. However, there is risk associated with short-term issues like inventory digestion processes, macroeconomic uncertainties and a stretched valuation. The stock has a Zacks Value Style Score of C, which indicates a stretched valuation.
STM currently carries a Zacks Rank #4 (Sell), implying that existing investors should sell the stock while new buyers should wait for a better entry point into the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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