Stem (STEM) Q2 2026 earnings review
Profitability Surges as Top-Line Growth Stalls
Stem’s aggressive pivot away from low-margin hardware resale is working wonders for its bottom line, but starving its top line. The company posted its fifth consecutive quarter of positive Adjusted EBITDA ($6.2M) and record non-GAAP gross margins (55%). However, total revenue fell 12% YoY to $33.7M. More concerning is that the 'Core' segment—software, services, and edge hardware—grew a mere 1% YoY. Reaffirming full-year guidance sets up a massive 'show-me' second half, requiring an unprecedented ramp in both software adoption and opportunistic hardware sales to hit targets.
🐂 Bull Case
Non-GAAP gross margins hit 55%, proving the structural transformation is permanent. By successfully shedding low-margin hardware, Stem is extracting more profit from significantly less revenue.
PowerTrack EMS is gaining real traction abroad. The 135 MW Granja Solar project in Chile and 80 MWh hybridization projects in Hungary validate the platform's utility-scale capabilities.
🐻 Bear Case
Software, services, and edge hardware revenue grew just 1% YoY. If the core engine isn't growing at a high-double-digit clip, the software-centric narrative loses its premium multiple.
To hit the $165M FY26 revenue midpoint, Stem must generate ~$102M in H2. This implies heavily relying on up to $40M in unpredictable battery hardware resales, contradicting the software pivot.
⚖️ Verdict: ⚪
Neutral. The margin execution is genuinely impressive, but the abrupt deceleration in core software revenue growth is a glaring red flag that demands immediate re-acceleration in Q3.
Key Themes
Margin Expansion & EBITDA Trajectory
Accelerating. The strategic shift is yielding tremendous operating leverage. Adjusted EBITDA grew 63% YoY to $6.2M, driven by a higher mix of software and services combined with stringent OpEx control. The 55% non-GAAP gross margin is a structural high-water mark, insulating the company against hardware volume volatility.
Core Software Growth Suddenly Stalling
Decelerating violently. In Q1 26, core revenue (software/services/edge) grew 4% YoY, and PowerTrack alone grew 16%. In Q2 26, total core revenue grew just 1% YoY to $33.4M (up incrementally from $32.9M). ARR grew a sluggish 2% sequentially to $62.4M. For a company valued as a high-growth SaaS player, a 1% YoY growth print in its foundational segment is a serious operational warning.
Utility-Scale and International Expansion
Accelerating. PowerTrack EMS is the clear catalyst for international TAM expansion. Stem secured the Granja Solar project in Chile (retrofitting a 135 MW facility with 420 MWh storage) via Copec Flux. Additionally, Solarmarkt Group selected EMS for an 80 MWh hybridization in Hungary. This proves EMS can act as the master controller for complex, utility-scale hybrid grids across diverse regulatory environments.
Rapid AI & Automation Deployment
Stable. Stem is actively augmenting its software stack. They acquired raicoon GmbH to integrate automated fault detection into PowerTrack, aiming to reduce resolution times. Concurrently, they launched AIONA, an AI services offering targeted directly at execution-focused optimization. This transitions Stem from passive monitoring to active, AI-driven asset correction.
Over-Reliance on H2 Hardware for Guidance
Stable risk. Stem reaffirmed its $140M-$190M FY26 revenue guidance. With only $62.7M generated in H1, they need an implied $102.3M in H2 (midpoint). This requires up to $40M in lower-margin battery hardware resale—a segment they have actively suppressed (generating less than $1M in H1). Banking on opportunistic hardware flips to save the annual revenue target is a precarious strategy.
Macroeconomic & Policy Pressures
Stable. Management flagged ongoing uncertainty regarding the One Big Beautiful Bill (OBBB), import tariffs, high interest rates, and global geopolitical instability. To combat supply chain and domestic sourcing mandates, Stem signed a co-marketing agreement with Nuvation Energy to offer a fully North American-made BESS control stack.
Other KPIs
Reversing. Achieved positive operating cash flow, a massive swing from the $21.3 million burn in 25Q2. This validates that the structural OpEx cuts from 2025 and improved working capital dynamics are permanently changing the cash profile of the business.
Accelerating. Up 39% sequentially from $26.5M in 26Q1, and up 7% YoY. This boosted contracted backlog 18% sequentially to $27.1M, providing some visibility into H2 software/services revenue conversion.
Stable. Grew 6% sequentially from 1.7 GWh. Solar operating AUM also grew a modest 2% sequentially to 38.3 GW. Moderate physical asset growth aligns with the sluggish 2% sequential ARR growth.
Guidance
Accelerating implied H2. H1 actuals are $62.7M. H2 requires $77.3M to $127.3M. This assumes a sharp hockey-stick ramp driven by the guided 'up to $40M' in opportunistic hardware sales and backend-weighted software project completions.
Decelerating implied H2. Stem has generated $8.2M in H1. To hit the $12.5M midpoint, they only need $4.3M in H2. Given Q2 alone was $6.2M, this suggests management expects margin compression in H2, likely due to the influx of zero-to-low margin battery hardware sales.
Accelerating slightly. Ending Q2 at $62.4M means they need to add roughly $2.5M to $7.5M in net new ARR in H2. Given H1 only added $1.3M net new ARR, sales cycles must close significantly faster in Q3 and Q4.
Key Questions
Core Growth Stagnation
Software, services, and edge hardware revenue grew just 1% YoY. Is this the result of longer utility-scale sales cycles, elevated customer churn, or broader market hesitation regarding CapEx deployment?
Visibility into H2 Hardware Pipeline
The full-year guidance relies on 'up to $40M' in battery hardware resale, yet almost none materialized in H1. What is the explicit contractual visibility into these hardware deliveries for Q3/Q4?
raicoon Integration Timeline
With the acquisition of raicoon's software assets, how quickly will automated fault detection be fully monetized within the PowerTrack platform, and will it be an upsell or bundled to prevent churn?
Margin vs. Volume Trade-off in H2
If hardware sales flood the P&L in H2 as guided, Non-GAAP gross margins will mathematically compress from the current 55%. Has the business modeled the cash flow impact if those hardware sales face supply chain delays?