Stem Q1 2026: Software Revenue Edges Up, Total Revenue Falls 11% as Pivot Continues

What happened

Stem reported Q1 2026 revenue of $29.0M, down 11% YoY, driven by intentional reduction in battery hardware resales. Software, services, and edge hardware revenue grew 4% to $29.0M, indicating the mix shift is progressing. GAAP gross profit improved to $10.9M from $10.5M, and non-GAAP gross profit was $15.2M. The company's pivot to a software-first model is evident, but top-line contraction and modest software growth keep the focus on ARR trajectory, which ended FY2025 at $61.1M and needs to reach $65-70M by year-end to validate the thesis.

Implication

If software/services revenue continues to grow and ARR shows sequential improvement in the next two quarters, the thesis remains intact. However, failure to accelerate ARR growth to ~3% QoQ would suggest the pivot is stalling, increasing downside risk given thin liquidity.

Thesis delta

The Q1 2026 results confirm the mix shift is underway but do not yet demonstrate the acceleration in ARR and software revenue growth needed to underwrite the base case. The company's ability to convert bookings to activations and reduce cancellations remains unproven. The earlier view of a 'wait' rating is reinforced, with the next two quarters critical for evidence of compounding.