EVs, Robotics Among Growth Drivers As Chipmaker STMicro Gaps Up

Key Points

• Switzerland-based chipmaker STMicroelectronics gapped up 7.75% on January 26, after topping analysts’ views for fourth-quarter earnings.
• The company's price performance in January is outpacing the broader chip industry.
• It expects to grow revenue in a range between 4% and 10% this year. 
• Its chart shows a potentially bullish moving-average crossover on January 6.

Switzerland-based chipmaker STMicroelectronics N.V. NYSE: STM gapped 7.75% on January 26 after significantly topping analysts’ views for fourth-quarter earnings. 

The company earned $1.32 per share on revenue of $4.42 billion, topping analyst views of $1.13. Wall Street had expected revenue of $4.46 billion, so the company came in a bit short on the top line, but that didn’t bother anyone.  Those results marked a year-over-year earnings increase of 61% and a revenue increase of 24%.

In remarks accompanying the earnings release, CEO Jean-Marc Chery cited strength in the automotive and industrial sectors. He mentioned the increase in demand for chips used in electric vehicles, saying STMicro “achieved $700 million of revenues with silicon carbide in 2022, with a plan to be above $1 billion in 2023.”

Demand for silicon carbide chips is growing fast, better suited for EVs than more traditional silicon-based chips. They are also ideal for applications, including wireless networks and aerospace. 

Early To the Silicon Carbide Game 

STMicro was one of the early manufacturers, along with Wolfspeed Inc. NYSE: WOLF and Onsemi Nasdaq: ON, among other rivals.

The company’s partners are Volkswagen AG OTCMKTS: VWAGY and Mobileye Global Inc. NASDAQ: MBLY, which makes driver-assist technologies. 

Chery cited strong demand for power and energy, factory automation, and robotics applications in the industrial segment. 

That’s all good, but the market is a forward-looking mechanism, and investors want reassurance about more good times ahead.

For the current quarter, STMicro guided toward a net revenue midpoint of $4.20 billion, a year-over-year increase of 51%. The company expects the gross margin to come in at around 48%. That’s higher than the industry-wide gross margin reported for the fourth quarter of 2022 so far. 

For the full year, STMicro expects to maintain its strong focus on the automotive and industrial segments. The company said it has a higher backlog than entering 2022, suggesting an increased pace of order flow.

STMicro said, “Based on our strong customer demand and increased manufacturing capacity, we will drive the company based on a plan for FY23 net revenues in the range of $16.8 billion to $17.8 billion, representing a growth range of 4% to 10% compared to FY22.”

Forming Cup-Shaped Base

Even with the strong upside price action on January 26, STM is still forming a cup pattern that began in November 2021, a couple of months ahead of the entire chip industry’s retreat, as tracked by the iShares Semiconductor ETF NYSEARCA: SOXX. 

Its current buy point is above $52.15, although it may form a handle, offering an earlier entry point. 

Analysts see a 13.16% upside on the stock, according to MarketBeat data. That would put the stock at $52.83, which would clear the current consolidation. The current rating is “hold.” 

Institutional ownership of STMicro grew in the past 12 months. That ultimately drives share price higher and is why moving-average support is such a key factor to watch on a chart. STMicro has been trending along its 50-day line since gapping up on November 10, and flashed a bullish signal on January 6 as the 50-day line crossed over the longer-term 200-day moving average. 

Outperforming Broader Chip Industry

The stock is outperforming the chip industry as a whole, with the SOXX ETF up 15.79% in January. STMicro is up 21.82%. The ETF tracks the ICE Semiconductor Index of 30 stocks. Its largest components are NVIDIA Corporation NASDAQ: NVDA and Broadcom Inc. NASDAQ: AVGO, both of which have gone into rally mode recently. 

STMicro, which went public in 1994, is a mature, well-established company. It has a market capitalization of $42.31 billion, large by any standard, but still dwarfed by Nvidia, Broadcom, Intel Corporation NASDAQ: INTC and several other chip-industry titans. 

At this point in STMicro’s life, its price-to-earnings ratio is 10, not what you’d consider a blazing growth stock. Along those lines, the company has been returning capital to shareholders in the form of a dividend since 2001, although the yield, at 0.43%, is fairly low.