Jabil has left little doubt that data centers are its most important market, and it plans to take full advantage. The electronics manufacturing company is the IBD Stock Of The Day.
The company makes components for mobile phones, medical equipment, smart-home tech and many other industries. Operating in 30 countries, Jabil is also an expert on supply chains. And it provides design services.
But in the June 17 earnings report, CEO Michael Dastoor could hardly contain his enthusiasm for the data center business, saying it is "squarely at the epicenter of the AI revolution." Data center construction is at a fever pitch thanks to surging artificial intelligence workloads.
"Demand for AI hardware is not slowing down. If anything, it's accelerating," Dastoor told analysts. Demand in the AI space helped the company offset weakness in EVs, renewables and 5G networking.
"Our holistic approach to the data center, our deep engineering and design architecture, collaboration, and our ability to execute complex, high-volume production at scale makes us a good partner for the world's leading hyperscalers and silicon providers."
Citing the momentum, Jabil forecast AI-related revenue of about $8.5 billion in the fiscal year that ends in August — a jump of at least 50% year over year.
St. Petersburg, Fla.-based Jabil also announced it will open a new site somewhere in the Southeast to help meet demand for AI infrastructure. It plans to invest about $500 million over the next several years to expand its U.S. footprint.
The May-quarter results were pretty good, by the way. Earnings rose 35% to $2.55 a share and sales rose 16% to $7.828 billion. The company beat analysts' estimates and raised its full fiscal-year guidance. It forecast revenue of $29 billion (vs. $28.981 billion the previous fiscal year) and earnings per share of $9.33 (vs. $8.49). In addition, Jabil set a stock buyback of $1 billion. The stock jumped nearly 9% on the news.
Celestica Earnings Boost Stock Of The Day
Jabil stock rose 2% midday Tuesday as Celestica, the No. 1 stock in IBD's contract manufacturing group, soared more than 16% following a superb second-quarter report. Earnings jumped 54% on a 21% increase in sales.
Toronto-based Celestica — which is a key supplier for data center hyperscalers such as Alphabet and Meta Platforms — raised its full-year outlook. Its results caused the contract manufacturing industry group to leap 8% Tuesday, outperforming all 197 IBD groups.
The group has been vulnerable to bad news in its end markets, though. Last Thursday, the group fell after Tesla's earnings and reports from other tech companies left some doubts about manufacturers' outlook. The group bounced back quickly.
On July 17, JPMorgan Chase analysts raised the price target on Jabil stock to 256 from 214 and reiterated an overweight rating.
Jabil, the analysts noted, enjoys exposure to secular drivers within each end market. In particular, JPMorgan cited Jabil's exposure to AI data centers through its servers and switches businesses. Jabil "has been able to deliver robust margins through a downcycle in most of its end markets, proving to investors the upside from the higher-margin AI businesses."
The stock has a perfect IBD Composite Rating of 99.
Stock Of The Day Chart Analysis
Jabil stock formed a three-weeks-tight pattern this month with a 229.16 buy point. Shares briefly topped that level Tuesday. It is the first buy opportunity since the stock broke out of a cup-with-handle base in early June at 170.90.
The relative strength line is near a new high, another positive sign. Its IBD MarketSurge daily chart marks multiple days in June and July with "ants" indicators, which represent footprints of institutional buying. Shares found support at the 21-day exponential moving average last week.
The stock has a 21-day average true range (ATR) of 2.53%. The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks with a high ATR tend to make large price moves that can trigger sell rules. Stocks with lower ATRs tend to make more incremental moves.
With the S&P 500 and Nasdaq now in a power trend, investors can buy stocks with ATRs up to 8%, though they should be wary of being too concentrated in high-octane names.
