Jabil (JBL): A Structural AI Infrastructure Play with Undervalued Upside

The AI revolution is reshaping global infrastructure, and Jabil (NYSE: JBL) stands at the forefront of this transformation. With its $7.5 billion AI revenue trajectory, strategic investments in silicon photonics and liquid cooling, and a P/E ratio of just 12.82, JBL offers a compelling GARP (Growth at a Reasonable Price) opportunity. While headwinds in EV sectors and margin pressures persist, the company's structural growth drivers in AI infrastructure position it for asymmetric upside. Let's dissect why JBL is a must-own stock in the AI hardware race.

The AI Infrastructure Boom: Jabil's Sweet Spot

The demand for advanced data centers, cloud infrastructure, and photonics is exploding. By 2025, Jabil's AI-related revenue is projected to hit $7.5 billion, a 40% year-over-year jump, driven by hyperscalers like NVIDIA and AMD. This growth is underpinned by two key catalysts:
1. The $500M U.S. Manufacturing Facility: Set to open mid-2026, this Southeast U.S. site will focus on silicon photonics (enabling 1.6Tbps transceivers) and liquid cooling systems. These technologies are critical for managing the heat generated by AI servers, positioning Jabil as a key partner for 800G/1.6T data center builds.
2. Strategic Acquisitions: The 2025 acquisition of Mikros Technologies (a liquid cooling specialist) and Intel's photonics assets have bolstered Jabil's technical edge. Together, these moves target the $20 billion sovereign data center market in India and the U.S., where geopolitical risks favor domestic manufacturing.

Margin Expansion: A Hidden Growth Lever

While Jabil's core operating margin of 5% (up 110 bps YoY) lags peers like Amphenol (11.4%), the Intelligent Infrastructure segment is a bright spot. This segment's margins hit 5.3% in Q2 2025, with revenue surging 51% YoY to $2.6 billion. The margin uplift reflects scale efficiencies and premium pricing for photonics and cooling solutions.

This chart will show Jabil's margin trajectory converging with peers as AI becomes its largest revenue driver.

The company also plans to allocate 80% of its free cash flow (projected at $1.2 billion in FY2025) to buybacks, further boosting EPS. With $768 million remaining under its $1 billion buyback program, Jabil is signaling confidence in its ability to generate cash despite near-term macro challenges.

Valuation: A Bargain in the AI Hardware Race

At a P/E of 12.82 versus peers trading at 18–22x earnings, JBL is undervalued relative to its AI-driven growth. Consider:
- FY2025 Guidance: Revenue of $29 billion and core EPS of $9.33 imply a forward P/E of 14x, still below its 5-year average of 16x.
- Free Cash Flow Resilience: Jabil's $1.6 billion cash balance and 1.4x debt-to-EBITDA ratio provide a buffer against macro volatility.
- Underrated AI Exposures: Analysts have historically underestimated Jabil's photonics and liquid cooling capabilities.

This comparison will highlight JBL's valuation discount despite superior AI revenue growth.

Risks: EV Softness and Margin Pressures

Jabil's Regulated Industries segment (EVs, renewables) reported an 8% YoY revenue decline in Q2, pressured by China/EU market saturation and supply chain bottlenecks. Management cautions that margin pressures in this segment could persist through 2026. Additionally, geopolitical risks—such as U.S.-China trade tensions—could disrupt global supply chains.

However, Jabil's strategy to localize production in the U.S. (30 facilities) and India mitigates these risks. The $500M U.S. facility and Gujarat photonics hub are designed to insulate the company from tariff volatility and geopolitical shifts.

Investment Thesis: Buy the Dip, Target $180 by 2026

Jabil's AI infrastructure story is underappreciated but accelerating. With a $2.2 billion backlog and hyperscaler partnerships secured, the stock offers a rare combination of cyclicality resilience and secular growth.

Bull Case Scenario:
- AI revenue hits $8.5B by 2026 (27% of total revenue).
- Margins expand to 5.8% as photonics adoption scales.
- P/E re-rates to 16x, valuing JBL at $180 (20% upside).

Key Catalysts:
1. Q3 2025 earnings (due Oct 2025), where AI segment growth is expected to hit 17% YoY.
2. U.S. facility ramp-up (mid-2026) and first photonics contracts.

Investment Advice:
- Buy at current levels ($155) for a 1.5-year horizon.
- Hold for long-term exposure to AI hardware.
- Avoid if macro risks (e.g., recession) accelerate EV sector declines.

Conclusion

Jabil is a GARP gem in the AI infrastructure race. Its $500M U.S. facility and silicon photonics advancements are structural growth levers, while its undervalued P/E and robust FCF provide a margin of safety. Even with EV headwinds, JBL's AI-driven EPS trajectory and buyback plans make it a top pick for investors betting on the next tech cycle. The stock is poised to outperform as the market finally recognizes its AI leadership.

Final Note: Monitor Q3 results and U.S. facility progress for confirmation of margin and revenue trends.