Flex Ltd. FLEX is benefiting from faster AI infrastructure demand, widening margins and higher fiscal 2027 guidance. The trade-off is a valuation that has moved well above its historical median while capital requirements and leverage have increased.
The question for investors is whether Cloud and Power Infrastructure growth can translate into enough earnings and cash generation to justify the higher price and execution burden.
Flex’s AI Engine Is Driving Faster Growth
Cloud and Power Infrastructure, or CPI, is becoming Flex’s main growth engine. Revenue rose 35% year over year to $2.2 billion in the first quarter of fiscal 2027 as Power advanced and Cloud & Cooling programs continued to ramp.
Management expects CPI revenue growth of 45%-55% in the second quarter and 65%-75% for fiscal 2027. More than 90% of CPI business is booked for the remaining three quarters, while the fiscal 2028 framework still calls for revenue growth above 80%.
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FLEX’s Margins and Earnings Are Moving Higher
Adjusted operating margin reached 6.7% in the first quarter, up 70 basis points year over year, with expansion across all three segments. Adjusted operating income climbed 35% to $534 million, while adjusted earnings rose 38.9% to $1.00 per share.
Flex raised fiscal 2027 adjusted earnings guidance to $4.42-$4.74 per share from $4.21-$4.51. The company also lifted its adjusted operating margin outlook to 7.0%-7.2%, reinforcing the case that mix and productivity gains are accompanying the revenue acceleration.
Flex Trades Above Its Historical Valuation
FLEX trades at 22.2X forward 12-month earnings, above its five-year median of 12.6X. The multiple remains below the cited sub-industry level of 30.9X but is above the Zacks sector’s 21.6X and the S&P 500’s 20.8X.
That premium deserves scrutiny because investors have other manufacturing and infrastructure exposures. Jabil Inc. JBL recently announced its intent to form a strategic alliance focused on AI data center infrastructure manufacturing in India. Celestica Inc. CLS identifies data center infrastructure and advanced technology solutions as core parts of its business. Competitive alternatives raise the bar for Flex to execute on higher-value programs.
FLEX’s Cash Conversion Is the Main Trade-Off
Flex expects fiscal 2027 capital expenditures of $1.5-$1.6 billion as it supports capacity and infrastructure for new programs. Free cash flow conversion is now projected at roughly 40%, including spin-related costs, compared with prior guidance of about 60% that excluded those costs.
The balance sheet also carries more debt after acquisition funding. Long-term debt increased to $5.22 billion at June 26, 2026, from $3.75 billion at fiscal 2026-end, while first-quarter acquisition spending totaled $1.13 billion. That combination limits near-term financial flexibility during the expansion cycle.
Flex Ltd. Price, Consensus and EPS Surprise
Flex Ltd. price-consensus-eps-surprise-chart | Flex Ltd. Quote
Flex’s Ratings Point to a Balanced Stance
The growth and margin profile is improving, but the richer valuation, lower cash conversion and higher leverage argue against treating the AI story as a straightforward buy case. For investors considering a new position, a more measured stance fits the current risk-reward setup.
FLEX currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Its Value Score of B, VGM Score of B and Momentum Score of A are favorable, while the Growth Score of C is less supportive.
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This article originally published on Zacks Investment Research (zacks.com).