Sterling Infrastructure's CEC Acquisition: A Strategic Play for Dominance in AI-Driven Infrastructure

The race to build out the infrastructure supporting artificial intelligence (AI) and high-performance computing is intensifying, and few companies are better positioned to capitalize than Sterling Infrastructure (NASDAQ: STRL). On June 17, 2025, Sterling announced its $505 million acquisition of CEC Facilities Group, a leading specialty electrical contractor, marking a pivotal move to vertically integrate electrical expertise into its civil infrastructure portfolio. This deal isn't just about expanding market share—it's a strategic bet on Sterling's ability to dominate the $500 billion AI infrastructure boom, where semiconductors, data centers, and advanced electrical systems are the lifeblood of progress.

The Strategic Rationale: Vertical Integration Meets AI's Appetite for Infrastructure

CEC's core competency lies in mission-critical electrical systems—think semiconductor fabrication plants, hyperscale data centers, and advanced manufacturing facilities. Over 80% of its 2024 revenue came from these high-margin sectors, with a two-year revenue CAGR of ~20% and a 13% EBITDA margin. By combining CEC's electrical prowess with Sterling's civil engineering and construction expertise, the company now offers a full-stack infrastructure solution for clients building the backbone of AI-driven industries.

For example, a semiconductor manufacturer needs not just advanced electrical systems to power its factories but also the physical infrastructure to house them. Sterling can now provide end-to-end services—from designing the electrical grid to constructing the facility itself. This vertical integration reduces project risks, accelerates timelines, and creates cross-selling opportunities between CEC's electrical projects and Sterling's civil engineering backlog.

Unlocking Accretive Growth in AI's Hottest Sectors

The acquisition is immediately accretive to Sterling's bottom line. CEC is projected to contribute $390–$415 million in 2025 revenue and $51–$54 million in EBITDA, with the deal expected to add $0.63–$0.70 to adjusted EPS in its first year. But the long-term value lies in leveraging CEC's backlog and sector expertise.

• Semiconductors: CEC's largest market, now poised to grow as global chipmakers ramp up capacity to meet AI's insatiable demand for computing power.
• Data Centers: Demand for hyperscale facilities is surging, with companies like Microsoft and Amazon racing to expand server capacity.
• Manufacturing: Advanced factories require precision electrical systems to operate AI-driven robotics and automation tools.

Sterling's combined backlog—bolstered by CEC's $1.2 billion in signed contracts—positions it to capitalize on these trends. The earn-out structure tied to CEC's performance through 2029 also incentivizes the team to deliver on growth targets.

Financial Resilience and Analyst Optimism

Sterling's balance sheet remains robust. The upfront cash portion of the deal ($450 million) is partially offset by issuing $55 million in stock, and the company retains ample liquidity to fund growth. Analysts have taken notice:

• DA Davidson upgraded its price target to $265, a 29% increase from prior estimates, citing “best-in-class execution” in M&A and growth visibility.
• Sidoti & Co. raised 2025 EPS estimates to $7.93, up from $7.45, and projects $8.73 in 2026, driven by CEC's synergies.
• The stock's PEG ratio of 1.74 (vs. the industry average of 2.45) underscores its undervaluation relative to growth expectations.

Why STRL is Undervalued Despite Recent Gains

While Sterling has surged 11% in the month following the announcement, it remains a bargain relative to its growth trajectory. Key metrics highlight this:

Metric	Sterling (STRL)	Industry Average
P/E Ratio	25.46	28.42
P/FCF	22.1x	25.6x
ROIC	14.2%	11.8%

Even as the stock nears its 52-week high of $211.99, its valuation multiples are below sector averages, despite superior margins and growth. GuruFocus's conservative $86.74 1-year estimate appears out of step with analyst bullishness and the company's execution track record.

Investment Thesis: A Must-Own Infrastructure Play

Sterling's acquisition of CEC isn't just a defensive move—it's an offensive play to own a critical piece of the AI infrastructure puzzle. The combination of:

1. Vertical integration reducing customer costs and timelines,
2. High-margin sectors with secular tailwinds,
3. Analyst upgrades and a 29% upside to $265, and
4. Strong free cash flow conversion (CEC's 13% EBITDA margin)

makes STRL a compelling buy. While risks like regulatory delays or integration hiccups exist, the deal's accretive nature and Sterling's proven M&A track record mitigate these concerns.

Final Take

Sterling Infrastructure is now a one-stop shop for AI's infrastructure needs, and the CEC acquisition supercharges its ability to deliver. With a stock price that still lags its growth prospects and a valuation that's modest relative to peers, this is a buy at current levels. Investors seeking exposure to the AI boom should consider STRL a core holding—its dominance in vertically integrated infrastructure is just getting started.