ABB's AI-Driven Data Center Play: Margin Expansion and Spin-Off Catalysts Fuel Undervalued Growth

ABB's record-breaking Q2 2025 results underscore a strategic pivot toward high-margin segments poised to dominate the next decade of technological innovation. With order intake soaring to $9.8 billion (+16% year-on-year) and U.S. demand surging 37%, the company is positioning itself at the nexus of AI infrastructure and electrification—a market worth $250 billion by 2030. Yet, its stock price lags behind peers, offering a compelling entry point as margin expansion and a 2026 robotics spin-off unlock hidden value.

The AI-Data Center Growth Engine: Why ABB's Margins Matter

ABB's Q2 results reveal a clear strategy: leverage its Electrification segment's 23.9% operational EBITA margin (up from 22.6% in 2024) to capitalize on the data center boom. This segment's $4.5 billion in orders (+11%) was driven by utilities, commercial buildings, and—critically—data centers fueling AI development. U.S. demand for these systems grew 37% year-on-year, outpacing even the Americas region's 27% order surge.

The U.S. is now ABB's largest market, and its AI infrastructure pipeline is expanding. U.S. firms are investing $100 billion annually in data centers through 2027, with ABB's power distribution and energy storage solutions (e.g., its Battery Energy Storage-as-a-Service) becoming table stakes for hyperscalers. CEO Morten Wierod noted, “AI's compute needs are reshaping demand for energy-efficient systems—we're at the heart of that transition.”

Despite these tailwinds, ABB's stock trades at 14.5x forward earnings—well below Siemens' 18x and Rockwell's 24x. This disconnect is puzzling given its margin trajectory: operational EBITA margins rose to 19.2% in Q2, up from 19% in 2024, and the Electrification segment's margins now outpace peers by 4-6 percentage points.

The Robotics Spin-Off: A Capital Reallocation Catalyst

ABB's decision to spin off its Robotics division in mid-2026 is often misread as a cost-cutting move. In reality, it's a strategic reallocation of capital toward higher-margin markets. Robotics & Discrete Automation's 9.1% operational EBITA margin in Q2 contrasts starkly with the Electrification segment's 23.9%. By separating the divisions, ABB can:
1. Redirect $400+ million in annual capital spending toward AI/data center infrastructure (e.g., R&D on its OmniCore control platform).
2. Unlock shareholder value via a potential Robotics IPO or sale, which could fund share buybacks or acquisitions in growth segments.
3. Simplify its portfolio, enabling faster decision-making in its core electrification and automation businesses.

The spin-off also removes a drag on margins. Excluding Robotics' weak performance, ABB's adjusted EBITA margin would likely hit 21%+ by 2026, aligning with its 5%-7% revenue growth targets.

Risks and the Case for Patient Investing

Geopolitical risks—such as U.S.-China trade tensions—could disrupt supply chains, while the Robotics spin-off's execution is unproven. However, ABB's track record of M&A (e.g., its Siemens Wiring Accessories acquisition in China) and its ABB Way operating model mitigate these concerns. Meanwhile, its $1.06 billion in Q2 operating cash flow and $845 million in free cash flow (despite elevated capex) signal financial resilience.

Investors should also note that ABB's net debt-to-EBITDA ratio remains manageable at 1.8x, with $2.3 billion in liquidity buffers. The 2024 guidance—5% revenue growth and 18% EBITA margin—assumes a slowdown, suggesting further upside if AI/data center demand accelerates.

Buy the Dip: ABB as a 2025 Contrarian Play

ABB's valuation gap is an anomaly given its margin trajectory and sector tailwinds. With the Robotics spin-off unlocking capital and U.S. AI infrastructure spend set to rise, the stock is primed for a rerating. Investors should consider:
- Entry point: Below $35 (current price ~$33) offers a 15% upside to 2026 EBITA margin expansion.
- Catalysts: Q3 2025 order updates, Robotics spin-off details, and data center contract wins in H2.
- Hold for: 12–18 months to capture spin-off benefits and margin expansion.

In a market obsessed with short-term volatility, ABB's long-term positioning in AI-driven infrastructure—and its undervalued margins—make it a standout opportunity. The spin-off isn't a retreat—it's a reset for growth.