Flex Ltd: Powering the AI Revolution with Strategic Manufacturing and Margin Growth

The rise of artificial intelligence has ignited an insatiable demand for data center infrastructure, with AI workloads requiring 5–10 times more power density than traditional computing. Amid this transformation, Flex Ltd (FLEX) is positioning itself as a critical infrastructure provider, leveraging its unique integration of IT and power solutions, aggressive North American manufacturing expansion, and margin-focused strategies. With a projected mid-30% data center revenue growth in fiscal 2026—driven by reshored production and AI-driven demand—Flex is primed to capitalize on a structural shift in the tech sector.

The Manufacturing Edge: Reshoring to Win

Flex's North American manufacturing strategy is a masterstroke in mitigating supply chain risks and tariffs. By expanding its U.S. footprint to over 13 million square feet across 17 facilities—including dedicated sites in Columbia, South Carolina, and Dallas—Flex has slashed lead times for critical power products like its Databar enclosures and Remote Power Panels (RPPs). These facilities, combined with Mexico's 9 million square feet, create a regionalized production hub to serve domestic data center operators.

Crucially, Flex has passed tariff costs to customers, avoiding margin dilution while ensuring U.S. clients avoid geopolitical disruptions. This reshoring pivot also positions Flex to capture demand for “grid-to-chip” solutions: vertical integration of power systems (e.g., Anord Mardix's grid modernization) with liquid-cooled servers (via its JetCool partnership) allows Flex to deliver end-to-end data center infrastructure. Competitors, often fragmented between IT and power suppliers, cannot match this holistic approach.

Margin Expansion: From Cost-Cutter to Profit Machine

Flex's operational discipline is paying off. In fiscal 2025, gross and operating margins hit 8.8% and 5.7%, respectively—record highs—as the company shifted toward higher-margin segments like data center power and medical devices. Management now targets a 6%+ adjusted operating margin in 2026, achievable through:
1. Volume leverage: Scaling production of high-value power and cooling systems.
2. Vertical integration: Capturing profits across the supply chain, from power distribution to liquid cooling.
3. Sustainability plays: Circular economy initiatives (e.g., recycling data center components) reduce costs while appealing to ESG-conscious buyers.

Growth Catalysts: AI's Appetite for Power

The 30–35% growth in data center revenue (with power products outpacing cloud services) reflects Flex's dual focus on AI's hunger for infrastructure. Consider this: a single AI training job can consume as much power as 100 homes annually. Data centers are racing to upgrade to liquid-cooled servers and high-density power systems—exactly what Flex designs and manufactures.

Flex's partnerships, such as its JetCool acquisition for liquid cooling and Crown Technical for grid solutions, are no accident. These moves give Flex a first-mover advantage in AI-ready data centers, where competitors still rely on legacy air-cooled systems. Meanwhile, Flex's modular compute platforms—designed for AI's unpredictable workloads—allow clients to scale efficiently.

Risks? Yes—but Manageable

Skeptics will point to supply chain volatility, macroeconomic slowdowns, and competition. Yet Flex's $1.1 billion in free cash flow (2025) and diversified revenue base (data centers, medical devices, automotive) buffer against sector-specific downturns. Tariffs, while a headwind, are now factored into pricing, and Flex's global network of 30 countries ensures flexibility.

Why Invest Now?

Flex is a rare hybrid—a manufacturing powerhouse with tech-sector growth potential. Its stock trades at 10.2x 2026E EPS ($3.01), a discount to peers like Cobham (COBH) or Arista Networks (ANET). With AI infrastructure spending projected to hit $500 billion by 2027 (IDC), Flex's strategic bets are timely.

Conclusion: A Structural Play on AI's Future

Flex Ltd is no longer just a contract manufacturer—it's an infrastructure solutions leader for the AI era. Its reshored manufacturing, margin discipline, and integrated IT/power offerings create a moat few can match. With a clear path to 6%+ margins and 30%+ data center growth, Flex offers investors a compelling way to bet on the next wave of tech infrastructure. The time to act is now, before the AI boom fully upends the data center landscape.

This analysis does not constitute investment advice. Readers should conduct their own research or consult a financial advisor.