STMicroelectronics N.V. (STM) | The Buildout — AI Infrastructure
The Verdict
STM runs its own front-end and back-end fabs and sells semiconductors into automotive, industrial, personal electronics, and communications equipment and computer peripherals. In the AI buildout, it supplies the connective layers around compute—silicon photonics for optical interconnect, microcontrollers, power, and analog content—rather than accelerators or GPUs.
| Market Cap | — |
| Revenue (TTM) | $13.1B |
| Revenue Growth | +10.0% |
| EBITDA Margin (TTM) | 16.3% |
| Net Cash | $2.0B |
| Earnings Beats | 4 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- LEO satellite revenue ambition is well above $3B cumulative for 2026–2028, supported by a dedicated investor call and a direct-to-cell power amplifier controller award.
- Q2 book-to-bill was close to 2 overall and significantly above 2 in Communications Equipment & Computer Peripherals, with backlog at 4.5–5 quarters of Q2 average revenue.
- The AWS engagement is named as a multiyear, multibillion-U.S.-dollar commercial engagement covering a broad range of semiconductor solutions.
- Q2 end-market growth was Industrial +34% and Automotive +16% YoY, distribution inventory is below target, and silicon carbide is guided to double-digit 2026 revenue growth.
- Management said 2026 data-center revenue is 100% covered by backlog, and 2027 is covered by current engagements.
What We’re Watching
- Gross margin above 40% now depends on completing the 200mm→300mm silicon and 150mm→200mm SiC reshaping program by end-2027, not just reaching $4B quarterly revenue.
- Power & Discrete's non-GAAP operating margin was -21.4% in Q2, and management gave no timing for a return to segment profitability.
- A book-to-bill near 2 in a tight supply environment could include over-ordering; management denies pull-ins, but that claim will be tested by future order behavior.
- Q3 gross-margin guidance embeds about 70 bps of unused capacity charges, and Q4 unused capacity charges are not expected to decline significantly.
The revenue side of the thesis has strengthened: data-center and space targets were raised, and order coverage is unusually high. The profitability side is more execution-gated because the >40% gross margin model now waits on end-2027 manufacturing reshaping completion. The key open question is whether reported revenue scales without gross-margin execution slipping further.
Earnings Beat
STMicroelectronics reported Q2 2026 net revenues of $3.49 billion, above the $3.45 billion midpoint. U.S. GAAP gross margin was 34.8%; non-GAAP gross margin was 35.2%. Non-GAAP diluted EPS was $0.31.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $3.5B | $3.1B | $2.8B | +24.4% |
| Gross margin | 34.8% | 33.8% | 33.0% | +180bps |
| EBITDA | $258M | $550M | $447M | −42.3% |
| EPS | $0.24 | $0.04 | $-0.11 | −317.5% |
| Book-to-bill | Close to 2 | Well above 1 | n/a | — |
ST is a core enabler for the Cloud AI era. We see strong traction on optical connectivity driven by silicon photonics ICs, electronic ICs, microcontrollers. For the power stage of Cloud AI, we are already successful with our microcontrollers and high-voltage power and analog products, and we are building a pipeline of design wins for low-voltage power and analog products.— Jean-Marc Chery, President and CEO, July 23, 2026
Management tone: Management's tone shifted from Q1's cyclical recovery language to a more structural growth posture. On the Q2 call, management described demand as further accelerating and expressed confidence in order coverage, while the CFO was explicitly candid about the gross-margin timing caveat.
Management Guidance
Q3 2026 revenue is guided to $3.70 billion at the midpoint, ±350 bps, with gross margin about 37% ±200 bps. Q4 revenue is expected above $4.0 billion, with sequential gross margin improvement limited by China fab start-up and manufacturing transfer costs. Full-year non-GAAP net OpEx is expected slightly above $3.8 billion, and net CapEx at the high end of $2.0B–$2.2B. Management tied >40% gross margin to completing the manufacturing reshaping program by end-2027.
Trajectory
Revenue is accelerating: Q2 FY2026 revenue was $3.49B, up 12.7% sequentially, and Q3 revenue is guided higher while gross-margin guidance embeds about 70 bps of unused capacity charges. Gross margin expanded 160 basis points, but EBITDA margin compressed as Power & Discrete remained at a non-GAAP operating margin of -21.4%. The driver is communication equipment and computer peripherals demand, led by optical connectivity, with industrial and automotive also rebounding.
The Model
The model projects FY+1 revenue of $13,950M with EBITDA of $3,013M, a 21.6% margin. FY+2 revenue is projected at $16,100M with EBITDA of $4,186M, a 26.0% margin. The near-term is anchored by the guided quarterly revenue ramp and data-center backlog; FY+2 assumes continued AI/optical and industrial recovery with margin expansion.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $11.8B | $13.9B | $16.1B |
| YoY Growth | — | +18.0% | +15.4% |
| EBITDA | $2.2B | $3.0B | $4.2B |
| EBITDA Margin | 18.3% | 21.6% | 26.0% |
Projections are the median of 5 independent model runs. The model’s revenue sits 3.8% below analyst consensus.
Q3 2026 revenue is guided to $3.70 billion at the midpoint, ±350 bps, with gross margin about 37% ±200 bps. Q4 revenue is expected above $4.0 billion, with sequential gross margin improvement limited by China fab start-up and manufacturing transfer costs. Full-year non-GAAP net OpEx is expected slightly above $3.8 billion, and net CapEx at the high end of $2.0B–$2.2B. Management tied >40% gross margin to completing the manufacturing reshaping program by end-2027.
What Could Go Right — and Wrong
- Data-center revenue stays above $1B in 2026 and well above $2B in 2027, with 2026 fully covered by backlog.
- Communications Equipment & Computer Peripherals grows close to 60% YoY in Q3 and close to 90% YoY in Q4 as guided.
- Silicon photonics at Crolles scales to 15,000 wafers per week and above without capacity gating.
- Silicon carbide revenue is guided to double-digit growth in 2026, supported by design wins and backlog.
- Manufacturing reshaping completes by end-2027, supporting gross margin above 40% at the target revenue scale.
- Book-to-bill near 2 reflects tight-supply over-ordering, and later cancellations or pushouts appear.
- Manufacturing reshaping slips past end-2027, delaying the >40% gross margin model.
- Power & Discrete remains deeply loss-making while AI power design wins do not translate into segment profit.
- Personal Electronics declines mid-single digit YoY in Q3 and Q4, and capacity reservation fees decline $140M in 2026.
- Silicon carbide 8-inch customer qualifications are gating the transition; benefits are expected more in end-2027 and 2028.
Looking Ahead
The next 12 months are framed by Q3 and Q4 2026 execution, the expected start of Sanan SiC production at end-2026, and the ramp of PIC100 plus the AWS engagement. Into 2027, the key items are data-center revenue converting above $2B, progress on the end-2027 manufacturing reshaping timeline, and SiC 8-inch customer qualifications.
- Q3 2026Q3 revenue and margin test — Tests $3.70B midpoint and about 37% gross margin guide.
- Q4 2026Q4 revenue above $4B — Tests sequential improvement better than normal seasonality.
- End 2026Sanan SiC production start — Tests 8-inch Chongqing production loading schedule.
- End 2026Quobly first commercial product — Tests the targeted quantum product milestone.
- End 2027Manufacturing reshaping completion — Tests the >40% gross margin condition, not before.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $13.3B | $11.8B | $13.1B | -10.9% |
| Gross Margin | 39.3% | 33.7% | 34.3% | 562bps |
| EBITDA | $3.7B | $2.2B | $30.9B | -41.8% |
| EBITDA Margin | 28.0% | 18.3% | 16.3% | 970bps |
| Net Income | $1.6B | $164M | $465M | -89.5% |
| Free Cash Flow | −$56M | −$106M | $7.8B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)34.3%
- EBITDA Margin (TTM)16.3%
- Net Margin (TTM)3.6%
- ROIC3.5%
- FCF Conversion21.7%
- SBC / Revenue-0.4%
The Company
STMicroelectronics is an integrated device manufacturer that designs, develops, manufactures and markets a broad range of semiconductors. It reports four segments: Analog products, MEMS and Sensors; Power and Discrete; Embedded Processing; and RF Optical Communications. Its products serve automotive, industrial, personal electronics, and communications equipment and computer peripherals. In AI infrastructure, ST supplies the connective layers around compute: silicon photonics for optical interconnect, microcontrollers, power and analog, and secure elements.
ST runs its own front-end and back-end manufacturing across Europe, Singapore, and China. It also subcontracted approximately 25% of the value of total silicon production to external foundries in 2025. Major sites include Crolles, France for 300mm silicon photonics; Agrate, Italy; Catania, Italy for SiC; and Singapore. A manufacturing reshaping program is moving 200mm to 300mm silicon and 150mm to 200mm silicon carbide, targeted for completion end-2027.
Business Segments
Competitive Landscape
STM describes itself as the #1 worldwide general-purpose MCU supplier for the fifth consecutive year, based on Omdia research, and management claims it is the unique company capable to provide silicon photonics technology on 12-inch. The source material names Coherent and Marvell among alternative suppliers, but does not provide a detailed competitor table.
- CoherentCross-stack note cites Coherent InP expansion as corroborating optical supply-chain tightness.
- MarvellFinancial-facts criticality note names Marvell as an alternative silicon photonics supplier that could ramp capacity.
Supply Chain
ST sits between external foundries/OSATs and end customers in automotive, industrial, personal electronics, and AI data-center infrastructure. It runs its own front-end and back-end fabs, and subcontracted about 25% of silicon production value in 2025.
More on STM: Earnings recap