AI demand is not a problem, but stock price plunges: Leading simulation chip company faces the "high expectations trap"

The analog semiconductor industry is currently facing a valuation dilemma of "the better the performance, the higher the expectations." Both Texas Instruments and STMicroelectronics have released strong Q2 financial reports, yet both companies saw their stock prices sold off after the results, reflecting a common predicament for the semiconductor sector: the performance itself is no longer sufficient to support lofty valuations; what the market wants are upside surprises beyond expectations.

STMicroelectronics was hit particularly hard. The company's Q3 revenue guidance midpoint was about $3.7 billion, lower than Bloomberg’s consensus estimate of $3.9 billion, causing its shares in Europe to plunge as much as 17% intraday, the biggest single-day decline since July 2025. Texas Instruments’ shares fell about 3% in U.S. intraday trading, despite both its Q2 performance and Q3 guidance exceeding market expectations.

Both companies’ stock prices had already posted significant gains—STMicroelectronics by about 119% year-to-date, and Texas Instruments by about 60%—resulting in high valuations that leave almost zero tolerance for any flaws. This situation shows that short-term risks for the analog semiconductor sector have shifted from fundamentals to expectations management.

Solid Financials, But Guidance in the Spotlight

Both companies delivered robust Q2 financials.

Texas Instruments’ adjusted earnings per share jumped 52% year-on-year to $2.14, above market expectations of $1.94; revenue grew 23% to $5.46 billion, also beating analysts’ consensus of $5.26 billion. Q3 profit and revenue guidance midpoints were also better than expected.

STMicroelectronics’ adjusted earnings per share more than doubled to $0.31, and revenue grew 26% to $3.49 billion, both slightly above analyst estimates.

However, guidance details from both companies triggered market concerns. STMicroelectronics’ Q3 revenue guidance was below expectations and flagged that the personal consumer electronics business would perform below seasonal patterns. Texas Instruments’ CFO Rafael Lizardi told analysts that capital expenditure may fall at the high end of its guidance range of $2–3 billion, suppressing expectations for free cash flow improvement.

Cantor analyst Matthew Prisco noted that Texas Instruments had already become a highly crowded long in the market, combined with high expectations: “Given the seasonal guidance (about +8% quarter-over-quarter) together with pricing, data center, and cyclical tailwinds, the after-hours sell-off is reasonable,” emphasizing that the capital expenditure statement is putting pressure on the cash flow inflection point expectations.

AI Data Centers Emerge as Core Growth Driver

Despite near-term pressure on share prices, both companies show a common theme of strong demand driven by AI infrastructure.

STMicroelectronics CEO Jean-Marc Chery said Q4 revenue will surpass $4 billion, up more than 20% year-over-year, mainly fueled by demand from AI data centers and low-earth-orbit satellite communications. The company raised its 2026 AI-related revenue outlook to exceed $1 billion and expects to far surpass $2 billion by 2027—marking the second significant upward revision since STMicroelectronics first issued separate AI business guidance in April this year.

Texas Instruments also reported rapid growth in data center demand, with industrial sales increasing by at least 30%, and automotive business recording double-digit percentage growth.

Bloomberg Intelligence analyst Charles Shum previously noted that AI rack power continues to rise, driving a new growth cycle for STMicroelectronics’ power semiconductors. The power management chip supply agreement between STMicroelectronics and Amazon AWS, according to Chery, will continue to generate revenue for the next three to five years.

High Valuations Now Present a Sector-Wide Risk

The market reaction to both companies reveals deeper structural issues facing the analog semiconductor sector.

STMicroelectronics’ year-to-date share gain is approximately 119%, and in June, it capitalized on the high valuation to complete a $1.5 billion convertible bond issuance; Texas Instruments’ gain for the year is close to 60%. These steep gains mean that a substantial degree of optimism has already been priced in, making any guidance below expectations likely to trigger profit-taking.

UBS analyst Francois-Xavier Bouvignies stated that STMicroelectronics’ stock price had already surged 35% in the past three months, “In our view, the lack of a substantial upward revision in results will put relative pressure on the stock vs. the market today.”

From an industry perspective, the fundamental recovery trajectory for analog semiconductors has not changed; AI infrastructure, industrial, and automotive demand are all rebounding. But with valuations already reflecting a highly optimistic outlook, investor sensitivity to the pace of growth has increased significantly—meeting expectations is no longer enough; the market now demands a sustained ability to surpass expectations.