SLB's Rally vs. The Market: Is the Good News Already Priced In?

Schlumberger shares have been on a tear, but the rally is built on a foundation of geopolitical hope rather than solid fundamentals. On January 5th, the stock closed about 9% higher on a surge of news. The White House confirmed a military strike on Venezuela and detained its president, while also announcing plans for major U.S. oil companies to invest billions rebuilding the country's collapsed oil infrastructure. For SLB, this sparked a powerful short-term catalyst, with shares rallying on the prospect of a massive new project and a potential $469 million debt settlement.

Yet this sharp pop must be viewed against a much longer, weaker trend. Over the past three years, SLB stock has fallen 15.9%. That deep, multi-year decline sets the stage for the current move. The recent 9% jump is a dramatic reversal of that downtrend, but it raises a critical question: is this rally sustainable, or is it simply a speculative bounce on external news?

The technical picture shows improving momentum, which helps explain the recent strength. The stock's Relative Strength (RS) Rating was upgraded from 73 to 84, and it has delivered a 24.8% price return over the past six months. This technical upgrade and strong six-month run suggest the stock is regaining favor with traders. The recent analyst upgrade from Evercore ISI, which raised its price target to $54, further fuels the optimism.

The core tension is clear. The market is pricing in a brighter future based on geopolitical catalysts and strategic repositioning. But the stock's long-term underperformance signals that fundamental challenges remain. The rally on January 5th was a classic "buy the rumor" move, driven by the promise of Venezuela. The real test will be whether the company's actual earnings report and long-term fundamentals can justify a move that has already erased years of losses. The expectation gap here is wide.

The Earnings Expectation Gap: What's Priced In for January 23rd?

The market's consensus for SLB's upcoming report paints a stark picture of continued cyclical weakness. Analysts expect the company to post Q4 EPS of $0.74, a 19.6% year-over-year decline. For the full year, the projection is even more subdued, with 2026 EPS forecast at $2.89, down 15.3% from the prior year. This is the financial print that the stock is currently trading against.

The expectation gap here is wide and fundamental. The recent rally, which has seen shares gain over 35% from their October lows, is built on geopolitical hope for Venezuela and strategic repositioning, not on a showing of improving fundamentals. The market is pricing in a future where Venezuela unlocks massive new projects and the ChampionX acquisition drives growth. Yet the earnings print for January 23rd is expected to reflect the present-a period of ongoing industry headwinds and declining profitability.

This sets up a classic "sell the news" risk. Evercore ISI's recent upgrade to Outperform and its $54 price target is based on a clearer outlook post-acquisition and the promise of multiple expansion, not on a beat of the current-year earnings consensus. The firm explicitly states the "real prize here is multiple expansion," arguing the market will better appreciate the cycle's durability. In other words, the upgrade is forward-looking, betting that fundamentals will improve enough to justify a higher valuation later. The current price, however, is being tested against the reality of a 19.6% EPS decline for the quarter just ending.

The bottom line is that the rally on geopolitical hopes may be unsustainable if the financial results do not show a clear and accelerating turnaround. The stock's recent strength has already priced in a significant amount of optimism. For the move to continue, SLB will need to not only meet but exceed the weak consensus, providing evidence that the "clearer outlook" Evercore sees is already materializing. If the print confirms the expected decline, the disconnect between the rumor and the reality could trigger a sharp reversal.

The Structural Headwind: Energy's Decoupling from the Market

The rally in SLB shares is playing out against a powerful, long-term trend that is fundamentally reshaping the market. While the S&P 500 has surged to a historic high, the energy sector has become a ghost at the feast. As of early January, the Energy Select Sector SPDR (XLE) represents a record low weight of just 2.8% of the S&P 500's total weight. This isn't a temporary blip; it's a structural decoupling where capital is rotating from "barrels to electrons" to power the AI revolution, leaving traditional energy to struggle under a massive global supply glut.

This backdrop is critical for framing SLB's challenge. The stock's recent strength is built on geopolitical hope for Venezuela and strategic repositioning, but it's doing so against a sector that has lost its central role in the market narrative. The broader index is being driven by a different growth story-one that prioritizes electricity for data centers over gasoline for cars. This shift means SLB's cyclical recovery is playing out in a market that has already moved on, where investor attention and capital are focused elsewhere.

The debate over SLB's fair value highlights this tension between its digital future and cyclical past. Some models, like a detailed DCF analysis, project an intrinsic value near $91, suggesting the stock is deeply undervalued based on future cash flows from digital growth and low-carbon projects. Others, citing the inherent volatility of the oilfield services cycle and current oversupply, argue a fair value closer to $36 is more appropriate. This wide range of estimates reflects the core uncertainty: is SLB becoming a tech-enabled infrastructure play, or is it still a commodity cyclically exposed to oil prices?

The bottom line is that the rally on geopolitical hopes faces a high bar. It must overcome not just weak fundamentals and a heavy supply glut, but also a market that has decisively moved on from energy as its primary growth engine. For the move to be sustainable, SLB needs to demonstrate that its strategic pivot to digital and low-carbon services is accelerating fast enough to justify a premium, even as the broader market's weight in energy continues to shrink. The expectation gap here is not just between rumor and reality, but between a fading sector narrative and a company's attempt to rewrite its own story.

Catalysts and Risks: What to Watch for the Thesis

The rally on geopolitical hopes now faces a series of near-term tests. The central question is whether this move can survive the reality check of the January 23rd earnings report and the slow grind of translating Venezuela's promise into real work.

The primary catalyst is the Q4 earnings release itself. Analysts expect a year-over-year decline of 19.57% in EPS to $0.74. The real prize, as Evercore ISI noted, is multiple expansion. For the stock to justify a move beyond the current price target of $54, management must provide a 2027 guidance that signals a durable turnaround. If the print merely meets the weak consensus, it will confirm the expectation gap between the rumor and the reality of ongoing cyclical weakness, likely triggering a "sell the news" reaction. The upgrade to Outperform is forward-looking; the earnings report is the first test of that thesis.

Simultaneously, investors must monitor the pace of Venezuela infrastructure investment announcements. The White House's promise of billions to rebuild Venezuela's deteriorated oil infrastructure is the immediate geopolitical catalyst. The key watchpoint is whether these announcements translate into near-term SLB work orders. The company's expertise makes it indispensable, but the timeline from announcement to contract award and mobilization is long. Any delay would undermine the short-term narrative that the stock is already priced for a quick windfall.

Finally, watch for any divergence between SLB's technical strength and its sector's weight in the market. The stock's Relative Strength (RS) Rating was upgraded from 73 to 84, showing strong recent momentum. Yet this technical signal is playing out against a backdrop where the energy sector represents a record low 2.8% of the S&P 500's total weight. If SLB's rally continues to outperform its sector and the broader market, it could signal a potential sector rotation. But if the stock's strength proves to be a false technical signal within a structurally decaying sector, the rally's sustainability is in serious doubt.

The bottom line is that the rally on geopolitical hopes is a high-stakes bet. It must overcome weak fundamentals, a massive supply glut, and a market that has decisively moved on from energy. The coming weeks will show if the company's strategic pivot to digital and low-carbon services is accelerating fast enough to justify a premium, or if the move is simply a speculative bounce on external news.