Flex surges on record margins, strong AI data center demand
Contract manufacturer beats earnings estimates, raises guidance as diversified strategy pays off
Flex Ltd. shares climbed sharply on Wednesday after the contract manufacturer delivered third-quarter results that topped analyst expectations, driven by record operating margins and accelerating demand for artificial intelligence infrastructure in its data center business.
The Austin-based company reported adjusted earnings per share of $0.87 for the quarter ended December 31, surpassing the consensus estimate of $0.79 and exceeding its own guidance range of $0.74 to $0.80. Revenue reached $7.1 billion, an 8% increase from the prior year and above the company's projection of $6.65 billion to $6.95 billion, according to the company's earnings release.
Perhaps most striking was Flex's margin expansion. The company achieved a record GAAP operating margin of 5.5% and an adjusted operating margin of 6.5%, marking the fifth consecutive quarter the company has maintained an adjusted margin at or above 6%. This performance underscores the success of Chief Executive Officer Revathi Advaithi's strategy to pivot Flex toward higher-margin, technology-intensive manufacturing segments.
The strong quarterly performance prompted Flex to raise its full-year fiscal 2026 guidance. The company now projects net sales of $27.2 billion to $27.5 billion, up from previous estimates, and adjusted earnings per share of $3.21 to $3.27, compared to the prior range of $3.09 to $3.17. The updated outlook implies approximately 18% earnings growth at the midpoint.
"Our diversified business model continues to demonstrate resilience and growth across multiple end markets," said Advaithi in the earnings announcement. "Particularly encouraging is the strength we're seeing in our data center business, which is benefiting from robust demand for AI infrastructure."
Flex's data center segment has emerged as a key growth driver as major technology companies accelerate their investments in artificial intelligence computing capabilities. As a manufacturer for leading equipment makers, Flex is positioned to benefit from the surge in demand for servers, networking equipment, and other infrastructure needed to power AI applications.
The company's free cash flow generation also impressed investors, reaching $275 million in the quarter, while cash flow from operations totaled $420 million. This strong cash generation provides Flex flexibility to invest in growth initiatives while maintaining shareholder returns.
Analysts have largely maintained positive ratings on Flex shares. The stock currently carries an average target price of $73.70, according to market data, representing upside potential from current levels. Of the nine analysts covering the company, eight rate it a buy or strong buy, with one recommending a hold.
Flex's transformation from a traditional electronics manufacturing services provider to a more diversified technology solutions company has been years in the making. The company has deliberately shifted its portfolio toward higher-value segments including cloud infrastructure, electric vehicle components, and medical devices, while reducing exposure to lower-margin consumer electronics.
The strategy appears to be paying off. Flex's forward price-to-earnings ratio stands at 17.4 times, significantly below its trailing multiple of 28.5 times, reflecting analysts' expectations for continued earnings growth. The company's price-to-earnings-to-growth ratio of 0.97 suggests the shares may still be attractively valued relative to the company's growth prospects.
Looking ahead, investors will be watching for updates on Flex's data center pipeline and any commentary on the broader AI infrastructure market cycle. The company's fourth-quarter guidance will also be scrutinized for signs that momentum can be sustained through the remainder of fiscal 2026.
Flex's performance Wednesday contrasts with recent volatility in the broader manufacturing sector, which has faced headwinds from uncertain demand conditions in some end markets. The company's ability to deliver record margins and raise guidance suggests its diversification strategy is providing insulation from cyclical pressures that have weighed on some competitors.