STEM Dips 43% in Six Months: Should You Buy, Sell or Hold the Stock?

Stem STEM, an artificial intelligence (AI)-enabled software and services company that empowers its clients to effectively plan, install and manage clean energy assets, has witnessed a drastic decline of 42.8% in six months, significantly underperforming the broader Zacks Computer and Technology sector and Computers - IT Services industry’s growth of 6.5% and 18.6%, respectively.Over the same time frame, Stem lagged behind its industry peers, including Vertiv VRT, Grid Dynamics GDYN and DXC Technology DXC. For the past six months, shares of GDYN, VRT and DXC have gained 119.3%, 32.8% and 8.5%, respectively.The underperformance is attributed to a significant decline in hardware sales, driven by weak demand for hardware systems. This situation is primarily due to financing delays and specific project-related interconnections. Additionally, the shift of customers toward solar services has further provoked a decline in storage hardware sales.The ongoing unpredictability in the timelines for utility-scale storage hardware projects has prompted Stem to adjust its strategy and reduce reliance on income from hardware sales. These scheduling challenges led to disappointing bookings and revenues. As a result, Stem's share price has suffered, reflecting concerns about the company's financial performance. This strategic shift aims to diversify revenue streams and mitigate the impact of ongoing market volatility.Stem, Inc. Price and Consensus Stem, Inc. price-consensus-chart | Stem, Inc. QuoteSTEM’s Cautious Outlook for FY24Stem’s underwhelming financial results in the third quarter of 2024 and YTD compelled it to lower its guidance for 2024. Revenues plunged by 78% in the third quarter and 70% over the first nine months of 2024 compared to the same period of the previous year, clearly indicating significant challenges ahead.Due to its weaker-than-expected financial performance in the first three quarters, Stem lowered its full-year 2024 revenue forecast range to $135-$155 million from $200-$270 million projected previously. The Zacks Consensus Estimate for 2024 revenues is pegged at $136.9 million, indicating a year-over-year decline of 70.3%.This lower revenue projection will significantly affect the value of bookings. Bookings are now forecasted to be between $100 million and $500 million, a decrease from the previous guidance of $600 million to $1.1 billion.On its third-quarter earnings call, Stem highlighted two main reasons for the decrease in booking value. First, there was a reduction in the resale of battery storage hardware included in its bookings. Second, there has been a gradual shift toward shorter software and service contracts in the storage sector, which now typically range from three to five years compared to the previous contracts that lasted between 15 and 20 years.Business Transition to Limit STEM’s GrowthSTEM recently released a new business plan with a renewed focus on developing and marketing its AI-enabled software and services.This transition will necessitate significant operational changes, including a reduction in battery resales, which have historically generated the majority of revenues, changes to the way it produces and markets its products and services, and a realignment of the business processes. These changes, which are expected to result in lower revenues, higher expenses, and temporary disruptions in operations, may negatively impact the company's ability to successfully scale the software and services segments of the business and meet all operational and financial goals.Furthermore, various macroeconomic challenges, such as prolonged inflation, potential import tariffs, an economic slowdown and escalating geopolitical issues, including the conflicts between the United States and China and the uncertain impacts of current and future trade regulations, could adversely affect the stock market.Robust Offerings to Boost STEM’s ProspectsSTEM confidently asserts that its edge device and AI-enabled software are uniquely positioned to drive significant growth in renewable energy, even in a challenging economic environment.Stem recently unveiled that Mercuria Energy Trading has officially standardized on Stem’s PowerBidder Pro for effective bidding management and optimization strategies for a second clean energy asset within the Electric Reliability Council of Texas.The software was deployed in under 60 days after contract signing, highlighting its industry-leading integration and configuration capabilities. This rapid implementation empowered Mercuria’s trading teams to seize control of the asset without delay. This is the second Mercuria asset successfully supported by Stem’s PowerBidder Pro since Q3 2024, reinforcing Stem’s robust software and service-driven strategy aimed at achieving predictable, scalable growth and profitability for the company.STEM's recent launch of the PowerTrack Asset Performance Management suite revolutionizes how owners, operators, and asset managers manage their portfolios of storage, solar, and hybrid energy assets. This powerful software features customizable dashboards and workflows, allowing users to streamline data management and focus on what matters most.Furthermore, Stem and the Arizona Electric Power Cooperative, in collaboration with Prometheus Power, announced the successful completion of a solar and storage co-location project aimed at providing clean electricity to its distribution cooperatives and public power members. This project will utilize Stem’s award-winning AI-powered clean energy software, Athena, which will enable ongoing operation and monitoring of the storage system for optimal performance on a unified platform.What Should Investors Do With STEM Stock?Stem's AI-driven innovation and new business strategy may present a strong buying opportunity, though short-term challenges from macroeconomic uncertainties could pose risks.Additionally, STEM stock is not so cheap, as suggested by a Value Style Score of F.STEM currently carries a Zacks Rank #3 (Hold), implying that existing investors should keep holding the stock while new buyers should wait for a better entry point into the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks Naming Top 10 Stocks for 2025Want to be tipped off early to our 10 top picks for the entirety of 2025?History suggests their performance could be sensational.From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2025. Don’t miss your chance to get in on these stocks when they’re released on January 2.Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Stem, Inc. (STEM): Free Stock Analysis Report DXC Technology Company. (DXC): Free Stock Analysis Report Vertiv Holdings Co. 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