STMicroelectronics NV shares experienced a severe sell-off. Despite the company once again raising its full-year AI business revenue forecast and anticipating further acceleration in growth for the fourth quarter, its third-quarter revenue guidance fell below market expectations, prompting investors to take profits in the context of its high valuation.

On Thursday, STMicroelectronics released its Q2 2026 financial results, projecting Q3 revenue of approximately $3.7 billion (at the midpoint of its guidance range), which was below the average analyst expectation of $3.9 billion compiled by Bloomberg. Consequently, the company's European-listed shares plummeted as much as 17% during the trading session, marking their largest single-day decline since July 2025.

Management remains confident in the full-year growth outlook. CEO Jean-Marc Chery stated that fourth-quarter revenue would exceed $4 billion, representing year-over-year growth of over 20%, primarily driven by demand from AI data centers and low Earth orbit satellite communications. Concurrently, the company raised its 2026 AI-related business revenue forecast to over $1 billion and projected it would far surpass $2 billion in 2027.

High Expectations Lead to Disappointment on Guidance

Although the Q3 revenue guidance disappointed, profitability remains robust. The company expects a Q3 gross margin of around 37%, slightly above the analyst consensus of 36.76%, indicating continued improvement in its product mix.

The real source of market disappointment was the pace of growth.

Driven by the rapid expansion of its AI data center business, STMicroelectronics' share price had surged approximately 119% year-to-date, with the market already pricing in high growth expectations. In June of this year, the company also completed a $1.5 billion convertible bond offering while its share price was elevated.

Analysts, including Andrew Gardiner at Citi, noted in a report that the earnings report shows recovery in end markets like automotive and industrial is progressing, and AI and data center businesses continue to grow at a high speed. However, market expectations and valuations have risen in tandem. With a lack of further upward revisions to earnings forecasts, the stock faces short-term pressure for a correction.

AI Data Centers Emerge as Core Growth Driver

The ongoing expansion of AI infrastructure is becoming STMicroelectronics' most crucial growth engine.

As AI server power density continues to increase, data center demand for power management, power devices, and connectivity chips is growing steadily. Bloomberg Intelligence analyst Charles Shum previously noted that the continuous rise in AI rack power is driving STMicroelectronics' power semiconductor demand into a new growth cycle.

Chery indicated that the company's growth would accelerate further in Q4, mainly from long-term collaborative projects in AI data centers and low Earth orbit satellite communications. Earlier this year, STMicroelectronics signed a power management chip supply agreement with Amazon Web Services (AWS). Chery had previously stated that this contract would contribute revenue for the next three to five years.

Notably, the company first provided separate AI business revenue guidance in April of this year, nearly doubled the full-year forecast in June, and has now further raised it to over $1 billion in this earnings report. This reflects that the growth rate of the AI business continues to exceed management's prior assessments.

Automotive and Consumer Electronics Recovery Lags, Traditional Business Under Pressure

Despite the rapid growth of the AI business, traditional segments have yet to shake off their slump.

As a core chip supplier to companies like Tesla and Apple, STMicroelectronics has faced dual pressures over the past two years from weak demand in automotive and consumer electronics, coupled with slow customer inventory destocking. The recovery in its traditional businesses remains sluggish.

Against this backdrop, CEO Chery has actively driven a strategic transformation in recent years, reducing reliance on the automotive and consumer electronics markets and shifting focus toward high-growth areas like AI data centers, industrial power, and communications. Currently, the AI business is gradually becoming the company's new growth engine.

From an industry-wide perspective, signs of recovery are emerging in the mature-node chip market. Texas Instruments' latest revenue guidance exceeded expectations, with demand rebounding in industrial, automotive, and data center sectors. However, despite a roughly 70% year-to-date share price increase, its stock still declined in after-hours trading following its earnings report. This reflects the widespread valuation dilemma in the current semiconductor sector: performance is acceptable, but market expectations are even higher.