Global manufacturing solutions provider Flex (NASDAQ: FLEX) announced better-than-expected revenue in Q2 CY2025, with sales up 4.1% year on year to $6.58 billion. Guidance for next quarter’s revenue was better than expected at $6.65 billion at the midpoint, 1.8% above analysts’ estimates. Its non-GAAP profit of $0.72 per share was 12.3% above analysts’ consensus estimates.

Is now the time to buy FLEX? Find out in our full research report (it’s free).

StockStory’s Take

Flex’s first quarter results were met with a negative market reaction despite the company surpassing Wall Street’s revenue and non-GAAP profit expectations. Management attributed the strong performance to rapid growth in its data center segment, particularly in both cloud and power solutions. CEO Revathi Advaithi emphasized Flex’s ability to deliver integrated hardware, cooling, and power infrastructure as a key differentiator. CFO Kevin Krumm noted that the company’s operating margin expansion was supported by disciplined cost management and a favorable mix shift, especially as demand for advanced manufacturing and regionalized supply chains rose.

Looking forward, Flex’s improved revenue and adjusted EPS guidance are anchored by continued momentum in its data center and AI infrastructure businesses. Management pointed to strategic investments in new facilities, such as the recently acquired Polish manufacturing plant, and ongoing capacity expansion as critical to meeting demand. Advaithi highlighted that “35% growth does require investment,” pointing to the need for ongoing capital allocation toward high-growth areas. Krumm cautioned that tariff-related headwinds and investment in capacity would weigh on margins in the second half, but stated that these are factored into the company’s guidance.

Key Insights from Management’s Remarks

Management credited robust growth in the data center segment and operational execution in advanced manufacturing as the primary drivers of Flex’s performance, while also discussing how tariffs and ongoing investments are influencing profitability.

• Data center momentum: Flex’s data center business, encompassing both cloud and power solutions, continues to see substantial growth, with management reaffirming a 35% year-over-year target. The company’s vertically integrated approach, offering everything from custom rack assembly to direct-to-chip liquid cooling, has positioned it as a key partner for hyperscalers and infrastructure providers.

• Shift to regionalization: Management emphasized Flex’s global manufacturing footprint, noting a growing share of revenue from the Americas as customers seek to regionalize supply chains. This ability to shift production and adapt to local regulations is seen as a competitive advantage, especially in the context of evolving trade and tariff policies.

• Operational efficiency and margin gains: Improved operating margin was attributed to disciplined cost management and a favorable product mix, particularly in the Agility Solutions segment, which benefited from growth in cloud and AI demand as well as increased penetration of value-added services.

• Capacity investments: Flex is investing in new manufacturing capacity to support data center demand, including the acquisition of a facility in Poland that doubles power product capacity in Europe. These investments are intended to keep pace with customer needs and reduce lead times, especially as AI infrastructure demand accelerates.

• Tariff management: Management stated that tariffs are largely passed through to customers but acknowledged these can be a headwind to reported margins. Tariff impacts have now been incorporated into guidance, providing greater clarity around expectations for the remainder of the year.

Drivers of Future Performance

Flex’s forward outlook is driven by continued investment in data center capacity, ongoing regionalization efforts, and a focus on high-growth end markets, offset by margin pressures from tariffs and increased spending.

• AI infrastructure and data center expansion: Management expects sustained growth in both cloud and power segments, fueled by broader adoption of AI and higher demand for integrated solutions. This requires ongoing investment in manufacturing facilities and advanced automation, which are expected to support both near-term revenue and long-term positioning.

• Tariff and cost headwinds: CFO Kevin Krumm highlighted that while most tariffs are passed through, they still act as a headwind for margin performance. The company has adjusted its guidance to reflect current tariff policies and expects these to have a more pronounced effect in the back half of the year.

• End-market prioritization: Flex plans to prioritize capital allocation toward faster-growing, higher-return segments such as data center and healthcare, while maintaining investment discipline in slower-growth areas. Management believes this approach will help balance profitability and support strategic growth initiatives.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) progress on scaling new manufacturing capacity to support data center and AI infrastructure demand, (2) the impact of tariffs and regionalization strategies on margins and operational flexibility, and (3) trends in customer adoption of integrated solutions across both cloud and power segments. Execution on capital allocation toward high-growth end markets and management of supply chain risks will also be important signposts.

Flex currently trades at $50.50, down from $53.82 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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