Executive Summary / Key Takeaways

• AI revenue is more than doubling in two years from $5 billion in fiscal 2024 to a projected $11.2 billion in fiscal 2026, transforming Jabil from a traditional electronics manufacturer into an AI infrastructure specialist and driving a geographic rebalancing toward Americas-based production.

• Capital allocation has been fundamentally reset following the $2.2 billion Mobility divestiture, enabling management to return approximately 80% of free cash flow to shareholders while reducing shares outstanding by 47% since fiscal 2013 and maintaining net leverage at just 1.3x EBITDA.

• Margin expansion is occurring despite headwinds, with core operating margins improving 50 basis points year-over-year to 6.3% in Q4 FY25, driven by a deliberate shift toward higher-margin healthcare, AI infrastructure, and digital commerce automation businesses.

• The U.S. manufacturing footprint creates a strategic moat as Americas revenue reaches 46% of the total, positioning Jabil to capture reshoring demand and navigate geopolitical complexities more effectively than Asia-centric competitors.

• Two key variables will determine the thesis: whether AI-related revenue growth can sustain its 25% pace beyond fiscal 2026, and whether management can resolve the 20-25 basis point drag from underutilized capacity outside the U.S. while executing the $500 million Southeastern U.S. facility expansion.

Setting the Scene: From Electronics Assembler to AI Infrastructure Partner

Jabil Inc., incorporated in Delaware in 1992 but tracing its operational roots back 60 years, has spent decades evolving from a provider of electronic component manufacturing services into something far more strategic. The company now positions itself as an engineering-led manufacturing solutions partner across three reportable segments: Regulated Industries (automotive, healthcare, renewables), Intelligent Infrastructure (AI data centers, capital equipment, networking), and Connected Living & Digital Commerce (consumer devices, warehouse automation, robotics). This structure, effective September 2024, reflects a deliberate strategic shift away from commoditized assembly toward higher-value, stickier customer relationships.

The broader industry context makes this transformation timely. Global electricity demand is projected to increase 70% by 2040, driven primarily by data center growth. Traditional air-cooled infrastructure cannot handle the thermal density of modern AI workloads, creating an urgent need for liquid cooling, advanced power management, and integrated rack-level systems. Simultaneously, geopolitical tensions and supply chain disruptions have made manufacturing resilience a strategic imperative rather than a cost optimization exercise. Jabil's geographic footprint—now 46% Americas-based revenue, up from 25% in fiscal 2018—directly addresses this shift, particularly after the fiscal 2024 Mobility business divestiture freed resources for higher-growth opportunities.

Jabil competes in a fragmented but consolidating EMS landscape where scale, engineering depth, and supply chain orchestration determine winners. The company holds an estimated 10-12% market share, making it the largest publicly traded pure-play EMS provider ahead of Flex Ltd. (FLEX) at approximately 8.5%. However, this scale advantage comes with trade-offs: Jabil's 5.84% operating margin trails Celestica's (CLS) 10.32% due to its more diversified end-market exposure, but its $29.8 billion revenue base and $1.64 billion in operating cash flow provide resources for strategic investments that smaller peers like Sanmina (SANM) ($8.13 billion revenue) and Benchmark (BHE) ($2.6 billion revenue) cannot match.

Technology, Products, and Strategic Differentiation: Engineering as a Moat

Jabil's competitive advantage rests on five integrated pillars that management repeatedly emphasizes: long-tenured operational execution, regional manufacturing footprint, scale rationalization, supply chain orchestration, and factory automation. The "so what" of this framework is that Jabil doesn't simply assemble components; it co-designs manufacturing solutions that reduce customer costs, accelerate time-to-market, and improve yields at launch. This engineering-led approach creates switching costs that commodity assemblers cannot replicate.

In Intelligent Infrastructure, the AI opportunity manifests across three layers. First, cloud and data center infrastructure revenue grew 30% in fiscal 2025 as Jabil engages at the rack scale level, integrating full racks into single deliverable systems that shorten deployment time. This is materially different from selling individual servers or components—it makes Jabil embedded in customer platforms and harder to replace. Second, capital equipment revenue rose 10% as the company moved "closer to the chamber" with RF power systems and gas delivery sensors, becoming more integral to semiconductor manufacturing tools. Third, networking and communications declined 6% as legacy 5G infrastructure softness offset 51% growth in AI-driven silicon photonics, where Jabil is moving from 200/400G to 800G and 1.6T capabilities.

The healthcare transformation illustrates Jabil's value migration strategy. The $309 million acquisition of Pharmaceutics International (Pii) in February 2025 brought contract development and manufacturing organization (CDMO) capabilities in aseptic filling and oral solid dose manufacturing. This opens a $20 billion addressable market and enhances existing offerings like GLP-1 auto-injectors and continuous glucose monitors. Healthcare programs have 18-24 month incubation periods but offer long product lifecycles and stable returns, making them margin-accretive contributors to the path toward 6% core operating margins. The new Croatia facility, operational in fiscal 2027, will specifically support GLP-1 drug delivery, creating a geographic moat in European pharma manufacturing.

Digital commerce automation represents Jabil's most aggressive margin expansion opportunity. The segment is deliberately pruning lower-margin legacy consumer electronics to focus on warehouse robotics, automated retail, and AI-driven systems. Jabil is the largest manufacturing solutions provider for digital commerce customers, giving it scale advantages in a market where full automation is becoming standard. The shift from building consumer gadgets to orchestrating lights-out warehouses changes the margin structure fundamentally, as evidenced by the Connected Living & Digital Commerce segment's 210 basis point margin improvement in Q4 FY25 despite a 25% revenue decline from the Mobility divestiture.

Financial Performance & Segment Dynamics: Evidence of Strategic Execution

Fiscal 2025 results validate the transformation thesis. Revenue of $29.8 billion was flat year-over-year after adjusting for the Mobility divestiture, but the mix shift tells the real story. Intelligent Infrastructure grew 34% to $12.3 billion, with AI-related revenue specifically jumping from $5 billion to $9 billion. Regulated Industries declined a modest 3% to $11.9 billion, but healthcare is entering a growth phase that will offset automotive and renewables softness. Connected Living & Digital Commerce fell 25% to $5.6 billion, yet margins expanded dramatically as the portfolio mix improved.

The margin story is particularly compelling. Core operating margin reached 6.3% in Q4 FY25, up 50 basis points year-over-year, despite a 10-20 basis point hurricane impact in Q1 and a 20-25 basis point drag from underutilized capacity outside the U.S. This expansion is structural, not cyclical. The Mobility divestiture alone contributed 25-30 basis points of margin improvement by eliminating capital-intensive, low-margin assembly work. Meanwhile, healthcare and AI infrastructure businesses carry accretive margins that should continue lifting the overall profile toward the 6% plus long-term target.

Balance sheet strength provides strategic flexibility. With $1.9 billion in cash, net debt to core EBITDA of just 1.3x, and total liquidity exceeding $5.9 billion, Jabil can fund organic growth, pursue acquisitions, and return capital simultaneously. The company completed its prior $1 billion share repurchase authorization in Q4 FY25 and immediately launched a new $1 billion program intended for full execution in fiscal 2026. Since fiscal 2013, Jabil has reduced shares outstanding by 47% from 203 million to 107 million, buying back 136 million shares at an average price of $52. This disciplined capital return, combined with $7.7 billion in total shareholder returns over the period, demonstrates a shareholder-friendly capital allocation framework that few industrial peers can match.

Cash flow generation supports this strategy. Adjusted free cash flow exceeded $1.3 billion in fiscal 2025, with management guiding to "greater than $1.3 billion" for fiscal 2026. The Mobility divestiture fundamentally altered the capital intensity profile—what was a very capital-intensive business now requires just 1.5-2% of revenue in annual CapEx, freeing cash for higher-return opportunities. This is why management can commit to returning 80% of free cash flow while still investing $500 million in a new Southeastern U.S. facility and pursuing acquisitions like Mikros Technologies ($63 million) for liquid cooling capabilities.

Outlook, Management Guidance, and Execution Risk

Management's fiscal 2026 guidance frames the next phase of the transformation. Revenue growth of approximately 5% to $31.3 billion may seem modest, but the composition matters more than the headline. Intelligent Infrastructure is expected to grow 18% with AI-related revenue reaching $11.2 billion, a 25% increase. Regulated Industries will be flat as healthcare growth offsets automotive and renewables declines. Connected Living & Digital Commerce will decline 13% as the portfolio pruning continues. The net result is a "better mix" that should expand core operating margins by 20 basis points to around 5.6% despite capacity headwinds.

The guidance assumptions reveal management's confidence and conservatism. The 25% AI growth projection assumes sustained demand for liquid-cooled racks, silicon photonics, and capital equipment, all areas where Jabil is "bumping up against capacity in the U.S." The $500 million Southeastern facility, operational by summer 2026, is designed to alleviate this constraint and support "robust double-digit growth in AI-related revenue in fiscal 2027 and beyond." However, the 20-25 basis point drag from underutilized capacity outside the U.S. acknowledges that the geographic rebalancing isn't complete—Asian facilities serving legacy consumer markets remain underemployed.

Execution risk centers on three variables. First, can Jabil sustain AI growth beyond fiscal 2026 as hyperscaler capex cycles mature? The company's position in next-generation 1.6T silicon photonics and liquid cooling provides technology leadership, but customer concentration remains a risk with the top five customers representing 36% of revenue. Second, will the Croatia healthcare facility and Gujarat photonics expansion deliver projected returns given their long incubation periods? Third, can the new U.S. facility ramp efficiently while managing labor costs through automation? Management's experience with "tried and tested automation lines and robotics" suggests they can, but the scale of the investment creates execution risk.

Management's commentary on tariffs and geopolitics reveals strategic positioning. With 80-90% of Mexico business being USMCA-compliant and China operations predominantly "local for local," Jabil has limited direct tariff exposure. More importantly, being a U.S.-domiciled company with deep experience across 30 countries allows Jabil to "partner with customers to navigate issues like potential tariffs and supply chain complexities, a capability I believe is unmatched in the industry." This turns geopolitical risk into a competitive advantage, particularly as customers seek geographic diversification.

Risks and Asymmetries: What Could Break the Thesis

Customer concentration poses the most immediate risk. With 36% of revenue from the top five customers and 90% from the top 87, any major customer bankruptcy, sourcing strategy shift, or order cancellation could materially impact results. The AI infrastructure business, while growing rapidly, is concentrated among a few hyperscalers and semiconductor companies. If these customers shift to in-house manufacturing or develop direct relationships with component suppliers, Jabil's growth trajectory could stall. The company's response—becoming more embedded in customer platforms through rack-level integration and co-design—creates switching costs, but this moat is not impenetrable.

Capacity utilization headwinds create a 20-25 basis point margin drag that management acknowledges will persist into fiscal 2026. While the U.S. AI business is capacity-constrained, facilities in Asia serving legacy consumer markets remain underutilized. The company is "doing the blocking and tackling to be ready when demand improves" in these regions, but a structural shift away from China-based consumer electronics manufacturing could mean some capacity never returns to profitability. The $500 million U.S. investment, while necessary for AI growth, doesn't address this overhang and could pressure returns if ramp timelines slip.

The automotive and renewables end markets remain choppy. While the long-term outlook for battery electric vehicles and energy infrastructure is strong, near-term headwinds from interest rates, tariffs, and policy changes are reshaping demand. Jabil's automotive business is declining 5% in fiscal 2026 as OEMs reset portfolio strategies, and renewables are "not expected to grow" as solar and energy storage demand remains soft. The company's strategy of leaning into "vehicle-agnostic" solutions like software-defined vehicles and ADAS provides some insulation, but these programs have long development cycles and may not offset near-term volume declines.

Competitive pressure in AI infrastructure is intensifying. While Jabil was "the first EMS to do warrants" with major hyperscalers and claims "very little to no concern" about competitors securing similar agreements, the market is attracting intense investment. Celestica's 10.32% operating margins and 26% revenue growth in 2025 reflect its focused AI strategy, and Flex's supply chain capabilities pose a threat in data center infrastructure. Jabil's engineering moat and U.S. manufacturing footprint provide differentiation, but pricing pressure could emerge as more competitors build AI-focused capabilities.

Valuation Context: Premium for Transformation

At $214.05 per share, Jabil trades at 36.16 times trailing earnings and 19.60 times free cash flow. The enterprise value of $24.74 billion represents 11.67 times EBITDA and 0.83 times revenue. These multiples place Jabil at a premium to traditional EMS peers but at a discount to pure-play AI infrastructure companies, reflecting its transformation-in-progress status.

Relative to direct competitors, Jabil's valuation appears reasonable for its diversification. Flex trades at 25.89 times earnings with a 5.10% operating margin and 0.85 times debt-to-equity, showing lower leverage but also lower margins. Celestica commands a much higher multiple at 50.15 times earnings, justified by its 10.32% operating margin and 26% growth, but its concentrated exposure creates more cyclical risk. Sanmina's 35.38 P/E and 5.20% operating margin reflect its niche focus, while Benchmark's 46.06 P/E and 3.70% margin show the penalty for smaller scale.

Jabil's balance sheet metrics support its valuation. The 2.46 debt-to-equity ratio appears elevated but translates to just 1.3x net debt/EBITDA, providing substantial financial flexibility. The 5.84% operating margin, while below Celestica's, represents a 50 basis point improvement trajectory that should continue as the mix shifts toward healthcare and AI. The 40.38% return on equity demonstrates efficient capital deployment, while the 19.60 P/FCF ratio suggests the market is pricing in sustained free cash generation.

The key valuation question is whether Jabil deserves a premium for its AI transformation. With AI revenue growing 25% annually and representing over 35% of total revenue by fiscal 2026, the company is approaching a tipping where infrastructure growth could re-rate the multiple. However, the 20-25 basis point capacity utilization headwind and 5% overall revenue growth guidance for fiscal 2026 suggest the transformation isn't complete enough to command Celestica-like multiples yet.

Conclusion: A Transformation at an Inflection Point

Jabil's investment thesis rests on the successful intersection of two powerful trends: the AI infrastructure build-out and a fundamental reset of capital allocation strategy. The company is simultaneously building a leadership position in liquid-cooled data centers, silicon photonics, and healthcare CDMO while returning 80% of free cash flow to shareholders and reducing its share count by nearly half. This combination of growth and capital discipline is rare in industrial manufacturing and creates a compelling risk/reward profile.

The central variables that will determine success are execution velocity and margin sustainability. If Jabil can maintain 25% AI revenue growth beyond fiscal 2026 while expanding core operating margins toward the 6% plus long-term target, the current valuation will prove conservative. The U.S. manufacturing footprint provides a durable competitive advantage as reshoring accelerates, and the engineering-led model creates customer stickiness that commodity assemblers cannot replicate.

Conversely, if AI infrastructure demand proves cyclical, customer concentration creates volatility, or capacity utilization headwinds persist beyond fiscal 2026, the margin expansion story could stall. The $500 million U.S. facility investment must ramp on schedule and achieve targeted returns to justify the capital deployment. For investors, monitoring quarterly AI revenue growth, core margin progression, and commentary on capacity utilization will provide early signals of whether this transformation is delivering on its promise.