Flex (FLEX) Q2 2026: Data Center Revenue Jumps 35%, Margin Mix Drives Upward Guidance
Flex’s data center and power segment delivered at least 35% growth, fueling a $500 million upward revision to full-year revenue guidance and a step-up in profitability. Management’s bullish commentary on AI-driven infrastructure demand and a sustained mix shift toward higher-margin solutions signals a multi-year transformation, even as volatility in auto and regional disruptions persist. Investors should watch for Flex’s May investor day for a refreshed long-term outlook as cloud, power, and value-added services reshape the business model.
Summary
- Data Center Acceleration: AI infrastructure demand is driving a sustained portfolio shift toward higher-margin, technology-led businesses.
- Margin Expansion: Mix improvement from cloud and power, plus value-added services, is lifting profitability above historical averages.
- Strategic Capital Deployment: Flex is scaling CapEx and R&D to capture long-cycle cloud and hyperscale opportunities.
Performance Analysis
Flex posted 4% revenue growth in Q2, reaching $6.8 billion, with operating margin at 6%, marking the fourth consecutive quarter at or above this level. The company’s data center business, encompassing both power and cloud, remains the standout growth engine, with management reaffirming expectations for at least 35% revenue growth in this area for the year—a figure that outpaces industry benchmarks. Segment performance was led by the Reliability Solutions group, which delivered 3% growth and a 105 basis point margin expansion, while Agility Solutions grew 4% despite headwinds in consumer and lifestyle end markets.
Profitability gains were driven by favorable mix shifts toward higher-value product and services businesses, particularly in cloud, power, and compute. Free cash flow rose to $305 million, even as CapEx investments increased to support organic growth and new capacity. Inventory management improved, with days inventory outstanding falling by three days year over year. The company repurchased $297 million in shares, underscoring confidence in its capital return strategy.
- Data Center Outperformance: Cloud and power revenue outpaced company averages, validating Flex’s pivot to technology-driven solutions.
- Margin Mix Leverage: Higher-margin businesses are becoming a larger share of the portfolio, supporting sustainable margin expansion.
- Disciplined Capital Allocation: Investments are targeted at capacity in high-growth regions and verticals, with an eye on long-term customer contracts.
Flex’s strong quarter was not uniform across segments, with automotive and consumer markets remaining soft but stabilizing, and the Ukraine facility shutdown causing a modest revenue headwind. Nonetheless, the company’s ability to raise full-year guidance demonstrates resilience and operational agility.
Executive Commentary
"AI is driving one of the largest infrastructure build-outs in modern history, and Flex is at the forefront of this transformation. We are partnering directly with the world's leading technology companies to design, build and deliver the power, cooling and systems infrastructure that enables faster, more reliable data center deployments at scale."
Revathi Advaithi, Chief Executive Officer
"As we conclude our first half of the year with 4% revenue growth, we are confident in our ability to continue our strong top-line momentum in the second half of FY26 with an acceleration in Q4 driven by demand and power and cloud. This confidence in revenue coupled with our favorable mix and disciplined cost execution has allowed us to improve our full year expectations across all key metrics while overcoming headwinds."
Kevin, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. Data Center and AI Infrastructure Tailwind
Flex is capitalizing on the AI-driven data center buildout by integrating power, cooling, and compute in scalable, pre-engineered platforms. The company’s partnership with NVIDIA and other hyperscalers positions it as a critical supplier for next-generation 800-volt DC AI factories, which improve energy efficiency and reduce risk for large-scale operators. Management expects these programs to ramp in the coming quarters, anchoring long-term growth.
2. Margin Accretion Through Portfolio Mix Shift
The shift toward higher-margin product and service businesses is structurally lifting Flex’s profitability. The company’s compute and power solutions, which include proprietary IP and vertical integration, run at margins above the corporate average. Value-added services, such as vertical integration and engineering support, are expanding in both data center and other end markets, further supporting margin expansion.
3. Regionalization and Customer Resilience
Flex’s global manufacturing footprint and ability to enable customer regionalization strategies are proving to be a competitive advantage as clients seek to de-risk supply chains and comply with shifting trade and tariff regimes. Recent facility expansions in EMEA and North America, including new assets in Poland and Dallas, are designed to meet growing demand while supporting customer localization requirements.
4. Strategic Capital Deployment
Management is scaling CapEx and R&D investments to support long-cycle cloud and hyperscale programs, with a clear focus on capacity in high-demand regions and verticals. Despite these investments, Flex continues to improve free cash flow and maintain an investment-grade balance sheet, reflecting disciplined financial stewardship.
Key Considerations
Flex’s Q2 results reinforce a multi-year transformation, but investors should weigh the durability of AI infrastructure demand and the pace of margin expansion as the mix shifts further toward technology-led solutions.
Key Considerations:
- AI-Driven Demand Sustainability: Flex’s growth hinges on continued hyperscaler and cloud CapEx, which can be cyclical and subject to customer project timing.
- Margin Mix and Value-Added Services: The company’s ability to maintain and expand margins depends on scaling value-added offerings and sustaining pricing power in custom and complex solutions.
- Geopolitical and Regional Risks: Facility disruptions (such as in Ukraine) and evolving tariff regimes remain ongoing headwinds, though Flex’s pass-through model and regionalization strategy help mitigate exposure.
- Capital Allocation Discipline: Continued share repurchases and targeted CapEx reflect confidence, but the company must balance growth investments with cash generation and shareholder returns.
Risks
Flex faces execution risk as it ramps capacity in new regions and scales up AI infrastructure programs, with potential for supply chain constraints or slower-than-expected customer deployments. Tariff volatility and regional disruptions, such as the Ukraine shutdown, could create further revenue and margin uncertainty. Finally, exposure to cyclical end markets like automotive and consumer electronics could dampen overall growth if macro conditions deteriorate.
Forward Outlook
For Q3, Flex guided to:
- Revenue between $6.65 and $6.95 billion
- Adjusted operating income of $405 to $435 million
- Adjusted EPS between $0.74 and $0.80
For full-year FY26, management raised guidance:
- Revenue of $26.7 to $27.3 billion (up $500 million at midpoint)
- Adjusted operating margin of 6.2% to 6.3%
- Adjusted EPS of $3.09 to $3.17 (midpoint up $0.17)
- Free cash flow conversion target of 80%+
Management cited robust power and cloud demand, margin improvement from mix, and disciplined cost execution as drivers of the raised outlook. Investors should expect further updates at the May investor day, especially on long-term data center and cloud growth rates.
- Watch for updated long-term growth guidance in May
- Monitor CapEx deployment and margin progression as product and service mix evolves
Takeaways
Flex’s Q2 performance and guidance raise reflect a successful pivot to AI-driven data center infrastructure and higher-margin solutions, but investors should remain attentive to execution and cyclical risks as the business model evolves.
- AI and Data Center Tailwind: Sustained demand for power, compute, and cooling solutions is reshaping Flex’s growth profile and profitability, with long-cycle customer contracts anchoring visibility.
- Margin Expansion Credibility: The mix shift to proprietary products and value-added services is driving margin improvement, with management signaling further gains as these businesses scale.
- Execution Watchpoints: The ability to deliver on capacity expansion, regionalization, and customer project ramps will be critical to sustaining momentum as end markets evolve.
Conclusion
Flex’s Q2 2026 results underscore a transformative period, as AI infrastructure demand and a strategic mix shift drive both growth and margin expansion. The company’s raised guidance and bullish tone set the stage for a pivotal investor update in May, while ongoing investments in capacity and technology position Flex for long-term leadership in data center and cloud markets.
Industry Read-Through
Flex’s outperformance in data center and AI infrastructure signals robust, sustained demand for power, cooling, and compute solutions across the technology supply chain. The company’s ability to capture value from both hyperscaler and new cloud entrants points to a broadening market for specialized, vertically integrated manufacturing partners. Competitors and suppliers in electronics manufacturing should anticipate continued margin pressure unless they can pivot toward value-added, technology-driven offerings. The ongoing shift toward regionalized supply chains and resilient manufacturing models is likely to accelerate as customers seek to de-risk operations and comply with evolving trade regimes.