I went neutral on STMicroelectronics (STM) (“STMicro”) with my last update on the shares, largely because I just couldn’t reconcile the valuations across the sector with the likely growth and margin trajectories. I was also concerned about the high levels of lead-times – a situation that has in the past telegraphed weaker returns from chip stocks as order patterns normalize.
Since that last piece, STMicro shares have declined about 15%, underperforming both the chip sector as well as more specific competitors like Infineon (OTCQX:IFNNY), NXP Semiconductors (NXPI), and ON Semiconductor (ON), though longer-term performance timelines (two years and beyond) still largely favor STMicro over many peers.
I’m a little conflicted on recommending these shares now. I like STMicro’s strong leverage to auto and industrial electrification through not only silicon carbide (or SiC) but other chip types as well, not to mention opportunities in 32-bit MCUs (and embedded processing more broadly), IoT, RF, and sensing. I also like the fact that the shares are back down to a level where I see attractive long-term return potential. What I don’t like is that lead-times are still quite high across the industry and these shares could crack $30 in a correction.
Follow this link to the full article:
A Welcome Pullback At STMicroelectronics, But The Lead-Time Story Still Carries Risk
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