One of the underappreciated challenges of climbing mountains is that you have to get back down again, and sometimes the descent is trickier and riskier than the climb. I mention that here because I think one of the biggest risks around STMicroelectronics (STM) is how the company (and the sector) manages the descent from peak lead-times and what will be an upcoming surge in capacity.
In the past, the semiconductor sector has typically overshot with capacity additions, leading to cyclicality despite ongoing growth in demand volume. I do see some risk here of weaker-than-expected margins in FY23/24, but I also see a very attractive long-term opportunity driven by STM's leverage to end-markets like electrification and automation, as well as attractive categories like SiC, GaN, 3D sensing, and IoT.
STM shares definitely look undervalued now on a long-term basis, but sentiment and negative revisions remain a real risk over the next 24 months or so. If you can take the risk of short-term pain in the pursuit of long-term gains, this is a name to consider, but short-term losses keep you up at night, this may not be the right time for you and this stock.
Read more here:
STMicroelectronics Poised At The Edge Of The Cycle, And The Next Few Steps Are Into The Unknown
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