Can STMicroelectronics Turn Stronger Bookings Into Gross Margin Gains?

STMicroelectronics N.V. STM is entering a more constructive phase for gross margins as demand signals improve and unused capacity charges begin to ease. In the first quarter of 2026, the company reported a gross margin of 33.8%, or 34.1% excluding purchase price allocation effects tied to the acquisition of NXP’s MEMS sensor business. Excluding the NXP MEMS contribution and related PPA effects, gross margin was 33.9%, 20 basis points above the midpoint of guidance. On a year-over-year basis, the improvement was driven primarily by lower unused capacity charges and a more favorable product mix.STM’s stronger order momentum adds support to the margin recovery case. The company reported book-to-bill well above 1 across all end markets and regions in the first quarter, while distribution inventories have normalized.The second-quarter outlook provides an important checkpoint. STM expects revenues of $3.45 billion at the midpoint, representing sequential growth of 11.6% and year-over-year growth of 24.9%. Gross margin is expected to rise to about 34.8%, or 35.2% on a non-GAAP basis, despite the outlook still including roughly 100 basis points of unused capacity charges. Management also expects gross margin to improve sequentially through the third and fourth quarters, supported by higher revenues, lower underutilization charges and continued mix improvement.The recovery path, however, remains execution-dependent. STM is still transferring technologies and products from 200-millimeter to 300-millimeter fabs, while also transitioning silicon carbide production from 150-millimeter to 200-millimeter. These moves are temporarily weighing on manufacturing efficiency. The company also stated that first-quarter gross margin included about 50 basis points of negative impact from nonrecurring costs related to its manufacturing reshaping program, with a similar impact expected through the remainder of the year.For STM, the next phase of the gross-margin recovery narrative will likely depend on execution. If revenues continue to ramp and the reshaping program progresses on schedule, the company could build a stronger foundation for operating leverage over the coming quarters.How STM’s Margin Recovery Compares With Peersonsemi ON provides a useful comparison because it is already showing how improving demand and better utilization can support gross-margin expansion. In the first quarter of 2026, onsemi reported revenues of $1.51 billion and a gross margin of 38.5%, marking its third consecutive quarter of gross-margin expansion. Management also noted that manufacturing utilization improved sequentially to 77% and expects gross margin to expand through 2026, supported by Fab Right actions, better utilization and favorable mix.Navitas Semiconductor NVTS offers a smaller but relevant comparison on mix-driven margin improvement. It reported first-quarter revenues of $8.6 million, up 18% sequentially, while gross margin improved to 39.0% from 38.7% in the prior quarter. The improvement was supported by higher revenues and a greater contribution from high-power markets, as the company continues to reduce reliance on mobile and low-end consumer products. Navitas expects continued sequential revenue growth and gradual gross-margin expansion through 2026.Against this backdrop, onsemi and Navitas show that margin expansion across the power semiconductor space is being driven by a combination of improving demand, better utilization and richer product mix. For STM, the peer comparison underscores the importance of turning stronger order momentum into sequential gross-margin improvement while managing the near-term efficiency drag from its manufacturing reshaping program.STM’s Price Performance, Valuation & EstimatesShares of STMicroelectronics have surged 156.9% over the past year compared with the industry’s rise of 52.4%.STM’s Stock One-Year Price PerformanceImage Source: Zacks Investment ResearchSTMicroelectronics stock is currently trading at a discount. It is currently trading at a forward 12-month price-to-sales (P/S) multiple of 4.35, well below the industry average of 10.50.STM’s P/S Ratio (Forward 12-Month) vs. IndustryImage Source: Zacks Investment ResearchThe Zacks Consensus Estimate for STM’s 2026 earnings implies a year-over-year increase of 120.8%. Earnings per share estimates for 2026 have increased in the past 30 days.EPS Trend of STM StockImage Source: Zacks Investment ResearchSTM stock currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Beyond Nvidia: AI's Second Wave Is HereThe AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.See Stocks Now >>This article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks