Proact IT Group: Navigating Semiconductor-Driven Tech Waves Amid Regional Headwinds

The IT infrastructure provider Proact IT Group (STO:PROAC) has entered a pivotal phase, balancing its Nordic success with challenges in key markets. While the company's Q2 2025 results reflect a 7.2% year-over-year sales decline, its long-term growth trajectory hinges on leveraging secular trends in data infrastructure, AI, and hybrid cloud—sectors that are deeply intertwined with the broader health of the semiconductor industry. This article examines whether Proact can scale sales growth despite its indirect exposure to semiconductor demand cycles and regional operational hurdles.

Proact's Q2 Performance: A Regional Divide

Proact's Q2 net sales fell to SEK 1,171.8 million, a 7.2% drop compared to Q2 2024, driven by sharp declines in its Central (Germany/Czech) and West (Benelux) regions (-45.2% and -14.4%, respectively). Conversely, Nordic/Baltic and UK regions delivered growth (+3.6% and +18.7%), fueled by cloud services and the UK's Black Yachts acquisition. This divergence highlights Proact's reliance on replicating Nordic success in weaker markets, a strategy complicated by semiconductor-driven supply chain dynamics.

The semiconductor angle arises not from Proact's direct involvement in chip manufacturing—its services focus on IT infrastructure, cloud, and cybersecurity—but because its clients operate in industries heavily dependent on semiconductors. For example:
- Data Infrastructure Demand: Proact's hybrid cloud and AI solutions require robust hardware, including semiconductors for compute-intensive workloads. A shortage of advanced chips could delay client infrastructure upgrades, indirectly affecting Proact's sales.
- Cybersecurity Services: Demand for secure data environments (a Proact specialty) often correlates with broader tech adoption, which is semiconductor-dependent.

Scalability Risks: Semiconductor Cycles and Regional Execution

While Proact is not exposed to semiconductor volatility through direct operations, its growth hinges on two interlinked factors:
1. Global Semiconductor Supply Chains: A prolonged chip shortage could delay client IT investments, particularly in sectors like automotive or industrial manufacturing, which are Proact's end markets. Conversely, a semiconductor boom could boost demand for data infrastructure as companies expand production.
2. Regional Turnaround: Proact's ability to stabilize its Central and West divisions is critical. Weakness in Germany (a hub for semiconductor manufacturing) and Benelux may reflect local economic headwinds or supply chain bottlenecks, which Proact's cost-cutting and operational reforms must address.

Growth Catalysts: Riding AI and Data Sovereignty Trends

Proact's strategic initiatives align with secular trends that could offset near-term semiconductor-related risks:
- AI Infrastructure: The launch of its hybrid cloud AI platform targets regulated industries seeking sovereign data solutions. As AI adoption accelerates, Proact's Nordic-centric model—combining local trust and European data localization—positions it to capture share in markets wary of U.S. cloud providers.
- Recurring Revenue Resilience: Recurring revenue (36% of total sales) declined 2.8% annually, but its focus on cybersecurity and cloud support services offers a defensive moat. If Proact can stabilize this segment, it could weather semiconductor-driven demand swings.

Valuation and Investment Thesis

Proact's shares trade at a 25% discount to their 2023 highs, with an EV/EBITDA multiple of ~6x (based on trailing 12-months data). This reflects investor skepticism over its ability to bridge the gap between its 10% sales growth target and current performance. However, three factors make Proact a speculative buy:
1. Nordic Strength: Its home market's 10% EBITDA margin (vs. group's 6.5%) suggests scalability if replicated elsewhere.
2. Strategic Acquisitions: The Black Yachts deal exemplifies value creation through niche expertise in cloud and AI. Similar acquisitions in Nordic/Baltic markets could boost margins.
3. Debt Discipline: With net cash of SEK 100 million and a focus on capital discipline, Proact has flexibility to weather semiconductor-driven demand fluctuations.

Conclusion: A Long-Term Play on Tech Infrastructure Resilience

Proact's Q2 results underscore execution risks in its weaker regions, but its Nordic model and strategic bets on AI/data sovereignty offer a path to growth. While the semiconductor sector's dynamics are a wildcard, Proact's insulation from direct chip volatility and its focus on high-margin services make it a compelling play on the long-term demand for trusted IT infrastructure. Investors should prioritize Proact's ability to stabilize Central/West operations and expand recurring revenue—key metrics to watch ahead of the Q3 report. For now, the stock's valuation leaves room for optimism if regional turnaround efforts gain traction.

Investment Recommendation: Consider a speculative long position with a tight stop-loss, targeting a 12-month price target of SEK 28–30 (based on 8x EV/EBITDA if margins improve). Monitor semiconductor supply chain news for potential ripple effects on client IT spending.