STMicroelectronics Returns to Profit in Q2 but Misses Q3 Outlook; AI Data Center Target Sharply Raised

STMicroelectronics reported its second-quarter 2026 financial results on July 23, posting net revenues of $3.49 billion, up 26.0% year-over-year and exceeding the market expectation of $3.47 billion. Net profit came in at $222 million, compared to a net loss of $97 million in the same period last year. Non-GAAP earnings per share stood at $0.31, surpassing the expected $0.26. Despite returning to profitability, the company’s revenue guidance midpoint for the third quarter was set at just $3.7 billion—significantly below analysts’ average forecast of $3.9 billion—triggering a sharp intraday drop of up to 17% in its European-listed shares following the earnings release. Operating profit for the quarter totaled $187 million, falling short of the anticipated $234 million. EBITDA reached $679 million, and free cash flow amounted to $83 million, both below market expectations. The weaker-than-expected earnings quality was primarily attributed to asset impairments, restructuring charges, and accounting impacts related to the acquisition of NXP’s MEMS business. Inventory days declined from 140 to 126, dipping below the company’s typical target range and signaling positive momentum in the demand cycle. By business segment, the Analog, MEMS & Sensors (AM&S) product group saw revenue increase by 26.0% year-over-year, with operating profit surging 69.2%. The Embedded Microprocessors (EMP) group reported a 35.5% revenue rise and a 97.8% jump in operating profit. Meanwhile, the Power & Discrete (P&D) group posted modest revenue growth of just 3.7%, while its operating loss widened from $56 million to $99 million. The AI data center business emerged as a key highlight. The company once again raised its outlook for this segment, now expecting revenues to exceed $1 billion in 2026 and significantly surpass $2 billion in 2027. CEO Jean-Marc Chery stated that fourth-quarter revenues could break the $4 billion mark, driven by ramp-ups in AI data centers and low-Earth-orbit satellite communication projects. By end market, automotive sales rose 14% sequentially and 16% year-over-year; industrial sales grew 20% sequentially and 34% year-over-year; and communications equipment and computer peripherals sales jumped 50% year-over-year.