Key Takeaways Flex will report Q3 FY26 results Feb. 4, with consensus estimates at $6.81B in revenues and $0.79 in EPS.FLEX's data center business is a key growth driver, supported by AI infrastructure demand. Flex projects Q3 revenues of $6.65B-$6.95B and adjusted EPS of $0.74-$0.80 amid ongoing macro volatility.Flex Ltd (FLEX) is slated to report third-quarter fiscal 2026 results on Feb. 4.The Zacks Consensus Estimate for fiscal third-quarter revenues is pegged at $6.81 billion, which indicates an increas ...

Industry Overview - The global electronics manufacturing services (EMS) industry is experiencing significant growth, driven by AI data centers, consumer electronics, IoT markets, 5G adoption, and automotive innovations, particularly electric vehicles. The EMS industry is projected to grow at a compound annual growth rate (CAGR) of 6.95% from 2025 to 2034 [1]. Company Analysis: Flex Ltd (FLEX) - Flex is well-positioned for multi-year growth, with its data center business identified as the primary growth engine, significantly influenced by AI infrastructure developments [3][4]. - The company has introduced a new AI infrastructure platform that enhances data center deployment speed by up to 30% and reduces execution risk [4]. - Flex's revenue from the data center segment is expected to rise at least 35% in the current fiscal year, benefiting from partnerships with leading technology companies like NVIDIA [5][10]. - Despite strong performance in the power and cloud markets, Flex anticipates a slight decline in Agility Solutions revenues due to softer demand in consumer devices and challenges from the Ukraine facility shutdown [7][8]. - The diversified portfolio of Flex continues to provide stability, with steady demand in the Health Solutions segment and growth in the Communications and enterprise segment [6]. Company Analysis: Jabil Inc (JBL) - Jabil's growth is driven by its expanding opportunities in healthcare, cloud, data center, and energy infrastructure, with its Intelligent Infrastructure segment emerging as a key growth driver [9]. - The Intelligent Infrastructure segment generated $3.9 billion in revenues in the first quarter of fiscal 2026, reflecting a 54% year-over-year increase and constituting 46% of total revenues [11]. - Jabil's cloud and data center business is projected to reach $9.8 billion for fiscal 2026, bolstered by new program wins and acquisitions [12]. - The healthcare segment is expected to remain a long-term growth catalyst, with strong visibility into program ramps across various medical technologies [13]. - Jabil's free cash flow was $1.3 billion in fiscal 2025, with expectations to maintain this level in fiscal 2026, allowing for share buybacks and continued investments [15]. Performance and Valuation - Over the past six months, FLEX and JBL have seen stock gains of 27.2% and 7.2%, respectively [16]. - FLEX is trading at a forward 12-month price/earnings ratio of 18.22X, while JBL is at 19.02X, indicating a slightly more favorable valuation for FLEX [17]. Earnings Estimates - Analysts have maintained FLEX's earnings estimates for the current fiscal year, with no revisions over the past 60 days [19]. - In contrast, JBL has seen a 4.5% upward revision in its earnings estimates during the same period [20]. Investment Outlook - FLEX currently holds a Zacks Rank of 3 (Hold), while JBL has a Zacks Rank of 2 (Buy), suggesting that JBL may present a better investment opportunity at this time [21].

Summary of Conference Call Company and Industry - **Company**: Flex - **Industry**: IT hardware, communications equipment, cloud services, data center solutions Key Points and Arguments Cloud and Data Center Growth - Flex's cloud business is projected to grow at approximately **35%** this year, with the data center segment growing at **50%** last year and expected to maintain strong growth [9][10] - The cloud portion of the business is larger but is expected to grow slightly below **35%** this year, while the power business is anticipated to grow above **35%** [9][10] Customer Diversity and Engagement - Flex has a diverse customer base categorized into three segments: hyperscalers, co-location providers (co-los), and silicon providers, with multiple engagements in each segment [15][16] - The company emphasizes its broad customer engagement, which drives growth through various products and services [15][16] Power Business Outlook - The power business is critical as compute densities increase, leading to higher power consumption and heat generation [18][19] - Innovations in power management include modular solutions that allow faster deployment of data centers, with power pods enabling setups **30%** faster than traditional methods [20][21] - Flex is focusing on 800-volt architectures and partnerships with companies like NVIDIA to enhance its power solutions [39][41] Rack Integration and Margin Improvement - The market for rack integration services is expanding, with Flex positioned to provide comprehensive solutions due to its scale and vertical integration capabilities [24][25] - The fastest-growing business segment is also the highest margin segment, driven by the EMS products and services strategy [27] Custom ASICs and AI Infrastructure - Flex is actively involved in manufacturing accelerator hardware and is well-positioned to meet the increasing complexity of custom ASICs [30] - The AI infrastructure platform represents Flex's strategy to address power, heat, and scale challenges in data centers, focusing on modular solutions [31][32] Financial Performance and Margin Structure - Flex has improved its operating margins from around **3%** post-COVID to approximately **6%**, with expectations for further growth driven by the data center business [35][36] - The company anticipates that the growth in the data center segment will continue to enhance overall margin structure [37] Capacity and Investment Strategy - Flex has invested in expanding its manufacturing footprint in Eastern Europe and North America to meet growing demand while avoiding over-investment [45][46] - The company is focused on organic investments in capital and footprint to ensure sustainable growth [46] Other Business Lines and Growth Opportunities - Flex is exploring growth in areas such as digital infrastructure (high-speed networking and satellite communications), automation in industrial settings, and healthcare devices [50][51] - The automotive sector presents long-term growth opportunities, particularly in software-defined vehicles and power platforms [52] Conclusion - Flex is strategically positioned to capitalize on growth opportunities across various sectors, leveraging its diverse customer base, innovative power solutions, and integrated service offerings to enhance margins and operational efficiency [62][65]

Core Insights - Flex Ltd. (FLEX) has experienced a significant stock surge of 79.9% over the past year, reaching a 52-week high of $70.37 before closing at $68.50, driven by strong execution and a shift towards higher-value, technology-intensive businesses [1][4][8] Price Performance - FLEX's performance outpaces the Zacks Electronics - Miscellaneous Products industry, the Zacks Computer and Technology sector, and the S&P 500 composite, which grew by 24.3%, 24.8%, and 14.6% respectively [4] Growth Drivers - Flex's revenue for the second quarter of fiscal 2026 increased by 4% year-over-year to $6.8 billion, with the data center business identified as the primary growth engine [5][6] - The company is leveraging AI to drive infrastructure build-outs, enhancing its product portfolio with advanced manufacturing capabilities [6][8] - A new AI infrastructure platform has been introduced, allowing data center operators to deploy systems up to 30% faster while reducing execution risk [8] Partnerships and Innovations - Flex has partnered with NVIDIA on next-gen 800-volt DC AI factories, improving energy efficiency and reliability [9] - A collaboration with LG Electronics aims to develop integrated modular cooling systems to address thermal challenges in AI-driven data centers [9] Financial Performance - Flex's non-GAAP gross margin expanded by 80 basis points to 9.3%, and non-GAAP operating margin increased by 55 basis points to 6% [13] - The company reported a record $1.1 billion in free cash flow for fiscal 2025 and $305 million in adjusted free cash flow for the second quarter of fiscal 2026 [14] - Flex has repurchased $1.3 billion in stock in fiscal 2025 and $297 million in the second quarter of fiscal 2026 [16] Guidance and Outlook - Flex revised its fiscal 2026 revenue guidance to $26.7-$27.3 billion, expecting an adjusted operating margin of 6.2% to 6.3% and adjusted EPS of $3.09 to $3.17 [17][18] - Despite challenges such as tariffs and unfavorable forex movements, the company maintains a positive growth outlook [18] Valuation - FLEX trades at a forward 12-month price-to-earnings (P/E) ratio of 20.35, which is below the industry average of 24.99 [20] - Compared to peers like Jabil, Sanmina, and Celestica, FLEX's valuation appears attractive [22] Investment Opportunity - With strong cash flow, disciplined execution, and expanding margins, Flex presents an appealing investment opportunity even after its substantial stock appreciation [23]

Core Insights - Flex Ltd. is rapidly expanding its presence in the high-growth data center market, driven by proprietary technology, partnerships, and global manufacturing capacity to meet AI-driven infrastructure demand [1] - The company reported exceptional performance in the cloud and power segments during the second quarter of fiscal 2026, reinforcing its leadership in the industry [1] Data Center Portfolio - Flex's integrated data center portfolio, which includes power systems, cooling solutions, and compute, is a key growth engine supported by deep systems expertise and global scale [2] - Management highlighted that fully integrated power and IT solutions enable faster deployment and more efficient operations for hyperscale, colocation, and silicon customers, enhancing Flex's overall margin profile [2] AI Infrastructure Platform - A significant catalyst for growth is the introduction of a new AI infrastructure platform that allows data center operators to deploy infrastructure up to 30% faster and reduce execution risk [3] - Collaborations with NVIDIA and LG Electronics aim to develop modular, energy-efficient AI data centers, leveraging next-generation 800-volt DC architectures to improve energy efficiency and reduce cooling requirements [3] Revenue Growth and Guidance - Flex is projected to generate approximately $6.5 billion in data center revenue for the year, reflecting at least 35% year-over-year growth and constituting 25% of total revenues [4] - The company has revised its fiscal 2026 revenue guidance to $26.7–$27.3 billion, an increase of $500 million from the previous midpoint, with an expected adjusted operating margin of 6.2% to 6.3% [5] Competitive Landscape - Flex faces competition from companies like Jabil Inc. and Sanmina Corporation, which are also expanding in the data center and AI infrastructure markets [6][7] - Jabil is expected to benefit from strong demand in AI data center infrastructure and has projected revenues of $31.3 billion for fiscal 2026 [7] - Sanmina focuses on end-to-end solutions and is prioritizing expansion into high-growth industries, with expected revenues of $2.05-$2.15 billion for the first quarter of fiscal 2026 [8][9] Stock Performance and Valuation - Flex shares have increased by 48.5% over the past year, outperforming the Electronics - Miscellaneous Products industry, which grew by 20.7% [10] - The company trades at a forward 12-month price-to-earnings (P/E) ratio of 18.77, below the industry average of 24.02 [11] - The Zacks Consensus Estimate for Flex's earnings for fiscal 2026 has been revised upward over the past 60 days, indicating positive market sentiment [12]

Financial Data and Key Metrics Changes - Revenue for the second quarter was $6.8 billion, representing a 4% year-over-year growth [5][12] - Operating margin was 6%, maintaining this level for four consecutive quarters, with adjusted EPS of $0.79, up 23% year-over-year [6][12] - Gross profit totaled $632 million, with a gross margin improvement to 9.3%, up 80 basis points [12] Business Line Data and Key Metrics Changes - In the Reliability Solutions segment, revenue was $3 billion, up 3% year-over-year, driven by strong growth in power and moderate growth in health solutions [12][13] - Agility Solutions revenue totaled $3.8 billion, an increase of 4% year-over-year, primarily due to robust cloud demand [13] - Operating income for Reliability Solutions improved to $197 million, with a segment margin expansion to 6.5% [13] Market Data and Key Metrics Changes - The data center business is expected to grow at least 35% this year, reflecting strong demand in cloud and power sectors [7][8] - Medical device demand remains steady, with expectations for improvement in medical equipment later this year [10] - The automotive market is stabilizing, with new compute deals validating investments in software-defined vehicles [10] Company Strategy and Development Direction - The company is strategically shifting its portfolio towards higher-margin, technology-driven businesses, particularly in AI and data center infrastructure [8][9] - Flex unveiled a new AI infrastructure platform aimed at enhancing data center deployment efficiency [9] - The company is committed to rebuilding operations in Ukraine following facility damage, emphasizing resilience and support for employees [5] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to navigate a dynamic tariff landscape and maintain strong top-line momentum [15] - The company raised its full-year revenue guidance to between $26.7 billion and $27.3 billion, reflecting strong performance despite challenges [15][16] - Management highlighted the importance of partnerships with leading technology companies to drive future growth [46][47] Other Important Information - Free cash flow for the quarter increased to $305 million, with net CapEx totaling $148 million [13][14] - The company repurchased $297 million of stock, approximately 5.6 million shares [14] Q&A Session Summary Question: Why was there no upside to data center revenues despite strong performance? - Management clarified that data center growth is not updated quarterly, but they expect at least 35% growth for the year, which is strong compared to industry standards [22] Question: How does the mix of custom silicon versus merchant silicon impact the cloud business? - Management indicated that they benefit significantly from hyperscale growth and will provide updated guidance in May regarding the mix of custom versus merchant silicon [26][27] Question: What is driving margin improvements in the second half? - Management noted that growth in products and services businesses, which have higher margins, is expected to drive margin improvements [33][34] Question: How does the company view the automotive market's growth potential? - Management stated that they are cautiously optimistic about stabilizing growth in the automotive sector, with a focus on long-term commitments [55] Question: What is the outlook for data center capacity and potential supply constraints? - Management expressed confidence in capacity and capability across regions, with plans for significant CapEx investments to support growth [70][71] Question: How is AI and automation being utilized in operations? - Management highlighted ongoing efforts to deploy AI and robotics to enhance efficiency and productivity in manufacturing and logistics [76][77]

Financial Data and Key Metrics Changes - Revenue for the second quarter was $6.8 billion, representing a 4% year-over-year growth [5][12] - Operating margin was 6%, maintaining this level for four consecutive quarters [6][12] - Adjusted EPS increased by 23% to $0.79, marking a record for the company [6][12] - Gross profit totaled $632 million, with gross margin improving to 9.3%, an increase of 80 basis points [12] Business Line Data and Key Metrics Changes - In the Reliability Solutions segment, revenue was $3 billion, up 3% year-over-year, driven by strong growth in power and moderate growth in health solutions [12] - Agility Solutions revenue totaled $3.8 billion, an increase of 4% year-over-year, primarily due to robust cloud demand [12][13] - Operating income for Reliability Solutions improved to $197 million, with segment margin expanding by 105 basis points to 6.5% [13] - Operating income for Agility Solutions was $227 million, with operating margin slightly down to 6% [13] Market Data and Key Metrics Changes - The data center business is expected to grow at least 35% this year, reflecting strong demand in cloud and power sectors [6][10] - Medical device demand is steady, with anticipated improvements in medical equipment later this year [10] - The automotive market is stabilizing compared to prior quarters, with new compute deals validating investments in software-defined vehicles [10] Company Strategy and Development Direction - The company is strategically shifting its portfolio towards higher-margin, technology-driven businesses [6][10] - Flex is positioned to benefit from the AI-driven infrastructure buildout, partnering with leading technology companies to enhance data center capabilities [7][9] - The company is committed to rebuilding operations in Ukraine following facility damage, emphasizing resilience and support for employees [5] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to maintain strong top-line momentum in the second half of FY2026, with an acceleration expected in Q4 [15] - The company raised its full-year revenue guidance to between $26.7 billion and $27.3 billion, reflecting a $500 million improvement from previous estimates [15][16] - Management highlighted the importance of partnerships, particularly with Amazon, in driving long-term growth in the data center space [48][49] Other Important Information - Free cash flow for the quarter increased to $305 million, with net CapEx totaling $148 million [13][14] - The company repurchased $297 million of stock, approximately 5.6 million shares [14] - The impact of the Ukraine facility shutdown is estimated to be slightly over $100 million in revenue for the back half of the year [45] Q&A Session Summary Question: Why was there no upside to data center revenues despite strong performance? - Management clarified that data center growth is not updated quarterly, but they expect at least 35% growth for the year, which is strong compared to industry standards [21][22] Question: How does the mix of custom silicon versus merchant silicon affect the cloud business? - Management indicated that they benefit significantly from hyperscale growth and will provide updated guidance in May regarding the mix of custom versus merchant silicon [26][27] Question: What is driving margin improvements in the second half? - Management noted that growth in products and services businesses, which have higher margins, is expected to drive margin improvements [35][36] Question: How does the company view the automotive market's growth potential? - Management expressed cautious optimism, noting that they are platform agnostic and continue to see compute wins across various platforms [60][61] Question: What is the company's capacity to support data center growth? - Management confirmed strong capacity in EMEA and North America, with plans for significant CapEx investments to support growth in data centers [74][75] Question: What innovations are being pursued with AI and automation? - Management highlighted a partnership with Nvidia to deploy modular infrastructure for data centers and emphasized ongoing efforts to enhance factory efficiency through AI and robotics [76][80]

Core Insights - Flex has launched the industry's first globally manufactured, fully integrated platform for gigawatt data centers, specifically designed to support AI and HPC, enabling operators to deploy infrastructure up to 30% faster [1][5]. Group 1: Platform Features - The new platform integrates power, cooling, compute, and services into pre-engineered, modular designs, addressing the challenges of rising power, heat, and scale in data centers [2][4]. - Flex's platform allows for faster deployment, reducing time-to-market and accelerating revenue recognition [6]. - The architecture is flexible and open, allowing for adaptability to customer-preferred OEMs, which enhances deployment predictability [6]. Group 2: Product Innovations - Key innovations include high-density, liquid-cooled IT racks designed to support +/-400V and facilitate the transition to 800VDC power architectures [6]. - The Capacitive Energy Storage System is the first UL 1973-certified system aimed at reducing electrical disturbances from AI workloads [6]. - Modular rack-level coolant distribution units (CDUs) provide scalable capacity of up to 1.8 MW, supporting evolving AI, HPC, and hyperscale workloads [6]. Group 3: Operational Efficiency - The platform leverages Flex's global manufacturing and supply chain network, ensuring unmatched scalability, resilience, and deployment speed [5]. - Prefabricated power pods and skids simplify installation and reduce onsite labor, cutting construction time from over 12 months to just 6-12 months [6]. - The integrated hardware and end-to-end support enhance reliability, sustainability, and speed to scale for customers [7].