STMicroelectronics STM shares have plunged 47.5% on a year-to-date (YTD) basis against the Zacks  Semiconductor-General industry and the Zacks Computer & Technology sector’s return of 126.4% and 32.3%, respectively.

Over the same time frame, shares of its competitors, including NVIDIA NVDA, Amtech Systems ASYS and Texas Instruments TXN, have climbed 172.7%, 31.2% and 11.5%, respectively.

This underperformance is a result of the decline in order entry and customer backlogs during the third quarter, particularly in the auto and industrial markets. It also shows a distinct change in consumer preferences, as they have decided to switch from fully battery electric vehicles (EVs) to hybrids and from premium to economy models. 

However, the company has been focusing on expanding its portfolio to drive growth. To further expand its capabilities and provide a varied portfolio, STMicroelectronics recently brought the STM32N6 microcontroller (MCU) series online. The company claimed that the newly launched product is its most potent MCU series to date, which was the first to incorporate the Neural-ART Accelerator. According to STM, the STM32N6 MCU provides 600 times more machine-learning performance than a current high-end STM32 MCU.

For embedded systems and wearable technology, the STM32N6 offers outstanding flexibility and artificial intelligence (AI) performance in a tiny silicon package. STM’s developer-friendly software tools enable it to easily integrate AI models into the MCU, and the inference speed, driven by the revolutionary Neural-ART Accelerator, has surpassed its expectations.

STMicroelectronics N.V. Price and Consensus

STMicroelectronics N.V. price-consensus-chart | STMicroelectronics N.V. Quote

Expansion in the Industrial Market to Aid STM’s Growth

STMicroelectronics recently introduced the EVLDRIVE101-HPD motor-drive reference design, which is a noteworthy move. It features a 3-phase gate driver, STM32G0 microcontroller, and 750W power stage on a circular PCB that is only 50mm in diameter. This design easily fits into robots, drones and drives for industrial equipment like pumps and process automation systems.

The industrial end benefits from the recent introduction of ultra-low-power STM32 MCUs, which can reduce energy usage by as much as 50%. It lessens the impact of discarded batteries and the frequency of battery replacements, enabling designs that use energy-harvesting technologies like solar cells to function without batteries.

A significant innovation was made by STM with the release of ST Edge AI Suite, a unified set of software tools designed specifically to improve the creation and implementation of embedded AI applications.

STM Offers Dim Q4 and FY24 Guidance

For the fourth quarter of 2024, STM expects revenues of $3.32 billion at the midpoint, indicating a year-over-year decline of 22.4%. The Zacks Consensus Estimate is also pegged at $3.32 billion. 

Gross margin is expected to be about 38% at the midpoint, impacted negatively by about 400 basis points due to the combination of product mix and 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%.

Full-year 2024 revenues are expected to be $13.27 billion, indicating a decline of about 23.2% year over year, mainly due to lower revenues in Automotive and Industrial, partly offset by slightly better revenues in Personal Electronics. The consensus mark for revenues is pinned at $13.27 billion.

The consensus mark for earnings is pegged at $1.65 per share, down by a penny 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.

Remarkably, STMicroelectronics previously said that it expects the Industrial end market to recover more slowly than expected and the Automotive end market to grow less than anticipated in the second half of the year compared to the first half.

What Should Investors Do With STM Stock?

STMicroelectronics' resilience and long-term growth potential are demonstrated by its creative product launches and growing efforts to differentiate itself in the market through significant agreements. Near-term difficulties, such as inventory digestion procedures and macroeconomic uncertainties, present a risk though. 

Although STM’s strong fundamentals and cheap valuation, suggested by the Zacks Value Style Score of A, make it a compelling investment choice, the stock may not be an immediate buy considering near-term challenges.

STM currently carries a Zacks Rank #3 (Hold), implying that existing investors should keep holding 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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