Flex (FLNG) Q3 2025: Data Center Revenue Surges 35%, Accelerating Margin Expansion
Flex delivered another record quarter, powered by explosive data center demand and disciplined cost execution. The company’s strategic pivot toward high-value technology platforms is driving sustained margin gains and resilient growth, even as macro and geopolitical headwinds persist. With a bullish outlook, Flex is raising full-year guidance and signaling continued investment in AI-driven infrastructure build-outs.
Summary
- Data Center Outperformance: Flex’s cloud and power businesses are outpacing industry growth, cementing its role in AI infrastructure build-outs.
- Margin Structure Shifts: Favorable business mix and cost discipline are driving operating margin expansion above 6% for the fourth straight quarter.
- Investment Cycle Intensifies: Management signals increased CapEx and R&D allocation to support multi-year AI and data center demand surge.
Performance Analysis
Flex reported revenue of $6.8 billion, up 4% year over year, with gross margin climbing to 9.3% and operating margin reaching 6% for the fourth consecutive quarter. The company’s robust results are anchored in its data center segment, which continues to deliver at least 35% growth, far outpacing broader industry rates. This surge is driven by both cloud and proprietary power solutions, which are increasingly critical as hyperscalers and co-location providers invest in next-generation infrastructure.
Segment analysis shows reliability solutions (power, health, industrial, auto) contributed $3 billion in revenue, up 3%, while agility solutions (cloud, communications, consumer) delivered $3.8 billion, up 4%. Margin expansion in reliability was notable, up 105 basis points to 6.5%, reflecting a shift toward higher-value power products. Meanwhile, agility solutions maintained margin stability despite softness in consumer and communications, as robust cloud demand offset headwinds.
- Cash Generation Strength: Free cash flow rose to $305 million, with CapEx investment ramping to support organic growth and future data center projects.
- Shareholder Returns: Flex repurchased $297 million of stock, reflecting continued capital return discipline alongside organic investment.
- Inventory Efficiency: Inventory days fell by three versus prior year, underscoring operational agility despite supply chain volatility.
Overall, Flex’s execution is translating into record adjusted EPS and improved annual guidance across all major metrics, even as the company absorbs the impact of the Ukraine facility shutdown and currency headwinds.
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."
Ravithi Advisee, Chief Executive Officer
"Our capital allocation priorities remain unchanged. We're committed to maintaining our investment-grade balance sheet, funding strategic investments to support organic growth, and pursuing accretive M&A opportunities while returning capital to shareholders through opportunistic share repurchases."
Kevin Crum, Chief Financial Officer
Strategic Positioning
1. AI Infrastructure as a Growth Engine
Flex’s core strategy is to capture the accelerating wave of AI-driven data center investment. The company’s “grid to chip” platform, integrating power, cooling, and compute, is enabling customers to deploy up to 30% faster and at lower risk. Partnerships with NVIDIA and Amazon, as well as next-gen 800-volt DC AI factories, position Flex as a critical enabler for hyperscalers and emerging cloud players.
2. Margin Expansion Through Business Mix Shift
Management is deliberately shifting toward higher-margin product and service businesses, particularly in data center power and proprietary cooling. This mix shift is structurally lifting margins above 6%, with products and services now performing well above the company average. The company’s vertical integration—manufacturing racks, enclosures, and proprietary power products—enhances differentiation and profitability.
3. Diversification and Resilience
Flex’s diversified portfolio, spanning health solutions, communications, and automotive, is providing ballast against sector-specific volatility. Health and medical devices are emerging as secondary growth drivers, while automotive is stabilizing, aided by platform-agnostic compute wins that span ICE, hybrid, and EV vehicles. This breadth enables Flex to weather headwinds, such as the Ukraine facility shutdown and consumer device softness.
4. Capital Allocation and Capacity Build-Out
The company is accelerating CapEx deployment to support multi-year AI and data center demand, with recent investments in EMEA, North America, and new cooling capabilities. Despite these investments, Flex is maintaining strong free cash flow and an investment-grade balance sheet, balancing growth with shareholder returns through buybacks.
5. Technology and Automation Leverage
Flex is investing in AI and robotics to drive internal productivity and efficiency. New partnerships, such as the modular infrastructure pilot with NVIDIA, enable rapid data center deployment for customers, while internal AI initiatives are expected to further enhance manufacturing and logistics performance.
Key Considerations
This quarter underscores Flex’s evolution from a traditional contract manufacturer to a technology-enabled infrastructure partner for the world’s largest cloud and AI players. The company’s ability to deliver on both growth and margin, while absorbing external shocks, is a function of its strategic repositioning and operational discipline.
Key Considerations:
- AI-Driven Demand Surge: Data center and cloud investments are fueling above-market growth, with hyperscaler CapEx cycles expected to remain elevated for years.
- Business Mix Tailwind: Expansion of proprietary power and cooling solutions is structurally improving margin and competitive positioning.
- Geopolitical and Tariff Volatility: The Ukraine facility shutdown and ongoing tariff uncertainty are being managed through regionalization and supply chain agility.
- CapEx and Capacity Allocation: Sustained investment in global manufacturing and R&D is required to meet customer demand, but is being balanced against free cash flow and shareholder returns.
- Portfolio Resilience: Diversification across health, industrial, and automotive segments provides downside protection and optionality for future growth.
Risks
Flex remains exposed to geopolitical risk, as highlighted by the Ukraine facility shutdown, which represents a $100 million revenue headwind in the back half. Tariff and FX volatility continue to create uncertainty, though much of the tariff impact is passed through. Execution risk around scaling capacity for AI-driven demand and maintaining margin discipline as mix shifts further into high-value segments is notable. Management’s guidance assumes continued strength in cloud and power, but any slowdown in hyperscaler CapEx could temper growth and margin upside.
Forward Outlook
For Q3, Flex guided to:
- Revenue of $6.65 to $6.95 billion
- Adjusted operating income of $405 to $435 million
- Adjusted EPS of $0.74 to $0.80
For full-year FY26, management raised guidance:
- Revenue of $26.7 to $27.3 billion (midpoint up $500 million)
- Adjusted operating margin of 6.2% to 6.3%
- Adjusted EPS of $3.09 to $3.17 (midpoint up $0.17)
Management highlighted several factors that will drive results:
- Accelerating demand in data center power and cloud, with further upside possible as new programs ramp
- Ongoing CapEx and R&D investment to support multi-year growth
Takeaways
The quarter demonstrates Flex’s ability to deliver both growth and margin expansion, driven by a structural pivot to technology-enabled, high-value businesses. The company’s execution in AI infrastructure is outpacing the industry and providing a durable tailwind for both revenue and profitability.
- Data Center Momentum: Sustained 35%+ growth in cloud and power is driving both top-line and margin gains.
- Margin Resilience: Strategic mix shift and operational discipline are enabling record margin performance, even as the business absorbs macro and geopolitical shocks.
- Investment Watchpoint: Investors should monitor CapEx deployment and the ability to scale capacity in sync with multi-year AI infrastructure cycles.
Conclusion
Flex’s Q3 2025 results reinforce its transformation into a leading AI infrastructure partner, delivering record growth and margin amid a dynamic market. With raised guidance and a clear focus on high-value segments, Flex is positioned to capitalize on the next phase of cloud and AI investment cycles.
Industry Read-Through
Flex’s performance and commentary offer a clear signal for the electronics manufacturing and infrastructure sectors: AI-driven data center build-outs are fundamentally reshaping demand patterns, with suppliers who can deliver integrated, high-value solutions set to capture disproportionate share. The company’s margin expansion and capital allocation discipline highlight the strategic advantage of business mix and vertical integration. As hyperscaler CapEx cycles intensify, expect similar margin and growth tailwinds for peers with exposure to next-generation cloud, power, and cooling infrastructure. Conversely, legacy consumer and auto segments remain challenged, underscoring the need for ongoing portfolio repositioning across the industry.