Flex to Spin Off AI Infrastructure Unit Axiom by 2027

Paul Meeks argues that Flex offers an attractive investment opportunity because of Axiom's position in AI infrastructure and experienced leadership. Flex plans to separate Axiom, its Cloud and Power Infrastructure business, into an independent public company in the first quarter of 2027. Flex expects to complete the spinoff by March 31, 2027. Meeks believes separating Axiom from Flex's slower-growing manufacturing business could unlock significant value for investors.

Austin-based Flex designs and manufactures electronic products and equipment for businesses in industries including automotive, health care and technology. Flex also makes power and cooling systems used in AI data centers. Flex has historically grown at a mid-single-digit pace, with operating margins of around 6%. Meeks has known Flex for more than three decades. Meeks says Meeks was one of Flex's biggest shareholders when Flex went public in 1994.

Meeks argues that Axiom addresses a critical AI bottleneck by making equipment needed to power and cool AI data centers. Meeks expects demand for that equipment to grow alongside demand for AI. Flex expects Axiom's revenue to grow at least 80% in fiscal 2028. Meeks sees potential for Axiom's operating margins to rise from around 10% today to 15% to 20% over time. AI infrastructure company Vertiv's operating margins have expanded significantly since 2022, reaching nearly 20% in the second quarter. Meeks argues that Axiom could follow a similar path.

Revathi Advaithi, who has led Flex since 2019, is expected to become Axiom's CEO following the spinoff. Advaithi previously held senior leadership positions at Eaton, including running Eaton's electrical sector business. Advaithi also previously worked at Honeywell. Meeks considers Advaithi's experience valuable as Axiom seeks to capitalize on growing demand for power solutions in AI data centers.

Meeks argues that separating the businesses could help investors recognize Axiom's faster growth and higher margins. Flex is largely viewed as a traditional manufacturing company and is sometimes covered by industrials analysts rather than technology analysts. Meeks argues that an independent Axiom could attract more attention from investors focused on AI infrastructure. Meeks would prefer to own Axiom after the separation. Meeks also sees a possible opportunity to buy the remaining Flex business if investors undervalue that business.

Flex shares have fallen more than 35% from their 52-week high of $166.86 to around $108. Meeks views the decline as an attractive opportunity ahead of several catalysts. Flex's quarterly earnings are scheduled for Oct. 28. Flex's management will discuss the strategies of both businesses at Flex's Innovation Day on Nov. 10. Meeks thinks Flex shares could reach $150, with potential for further gains as the spinoff develops.

Meeks identifies concerns about AI data center spending weighing on Flex shares as one of the biggest risks. Meeks identifies Axiom failing to deliver the expected margin improvement as another major risk.