Executive Summary / Key Takeaways

• A Generational Power Opportunity: Structural demand from AI data centers and industrial reshoring has created a multi-gigawatt market for distributed power generation that Liberty is uniquely positioned to capture, with management targeting over 1 GW of capacity by 2027 and suggesting the power business could rival its legacy completions segment in scale within five to eight years.

• Completions Resilience at the Trough: Despite Q3 2025's 9% sequential revenue decline and 29% EBITDA drop, Liberty's completions business is structurally more profitable than past cycles, with technology moats like digiFleet and StimCommander enabling the company to maintain positive free cash flow even as conventional fleets face pricing pressure and accelerated attrition.

• Capital Allocation Markedly Shifting: 2025 capital expenditures of $525-550 million represent a strategic pivot, with completions CapEx moderating while power generation investments accelerate to approximately $200 million, funded through a mix of balance sheet cash and project-specific non-recourse debt that could cover 70% of large project costs.

• Valuation With Embedded Optionality: At $19.18 per share, Liberty trades at 0.79x sales and 6.23x EBITDA—multiples that reflect a traditional oilfield services company—while the power business, with its 15+ year take-or-pay contracts and high-teens return targets, remains largely unvalued by the market.

• Execution Is the Critical Variable: The investment thesis hinges on Liberty's ability to convert its power sales pipeline—which doubled in 90 days and includes Letters of Intent for multiple gigawatts—into signed contracts and deployed assets, while maintaining completions profitability through the current cyclical downturn.

Setting the Scene: From Frac Fleets to Power Generation

Liberty Energy began in 2011 as Liberty Oilfield Services, commencing operations with a single hydraulic fracturing fleet in a market dominated by integrated oilfield giants. Fourteen years later, the company has grown to approximately 40 active frac fleets operating across major North American shale basins and Australia's Northern Territory, establishing itself as a top-tier provider through technological innovation rather than scale alone. The April 2022 name change to Liberty Energy signaled a broader ambition beyond traditional oilfield services, but the real strategic inflection arrived in early 2023 with the launch of Liberty Power Innovations (LPI).

This dual-business structure—Completions Services and Power Generation Services—positions Liberty at the intersection of two distinct but complementary markets. The completions business provides the cash flow, operational expertise, and customer relationships to fund the power pivot, while the power business offers a less cyclical, higher-margin growth vector that could fundamentally re-rate the company's valuation multiple. The industry context is stark: global oil oversupply is expected to peak in the first half of 2026, pressuring frac activity, while power demand is rising at its fastest pace since the start of the century, driven by AI compute loads and manufacturing reshoring.

Liberty's competitive landscape includes Schlumberger (SLB), Halliburton (HAL), Baker Hughes (BKR), and Patterson-UTI (PTEN)—all pure-play or diversified oilfield services providers facing the same cyclical headwinds. Yet Liberty's strategic differentiation lies in its vertical integration and technology leadership, which have enabled it to outperform peers in market share gains during downturns. The company's Permian sand mines, digiFleet technology, and AI-driven StimCommander software create cost and efficiency advantages that conventional fleets cannot match, while its power pivot represents a move none of its traditional competitors are making with similar conviction.

Technology, Products, and Strategic Differentiation

Liberty's completions moat rests on three pillars: vertical integration, next-generation fleet technology, and data-driven optimization. The company's sand mines in the Permian Basin provide 100% of its proppant needs, eliminating third-party dependencies and reducing costs by an estimated 5-10% compared to peers who source externally. This integration proved decisive during the 2022-2023 supply chain disruptions and continues to provide pricing flexibility in today's competitive market.

The digiFleet platform represents a step-change in frac technology. Operating on 100% natural gas, digiPrime fleets achieve engine lifespans 2-3 times longer than conventional diesel systems while delivering 44% thermal efficiency—burning one-third less fuel for the same output. The recent Cummins (CMI) partnership to develop variable-speed, large-displacement natural gas engines further enhances this advantage, enabling precision rate control that reduces stage execution time by 65% and improves hydraulic efficiency by 5-10%. For E&P customers, this translates directly to lower costs, reduced emissions, and faster well completions.

StimCommander, Liberty's AI-driven fleet control software, orchestrates these advanced fleets through the Forge cloud platform, which analyzes over one billion daily data points to optimize performance. The system has increased engine life expectancy by 27% over three years and doubled power end durability. This creates a compounding performance advantage: as Liberty's fleets operate, they generate data that improves the AI models, which in turn enhances fleet efficiency and reliability. Competitors like Halliburton and Schlumberger offer digital tools, but none have achieved this level of integration between hardware durability and software optimization.

The power generation technology leverages this same operational expertise. Liberty's natural gas reciprocating engines offer 60,000-80,000 hour maintenance intervals—3-4 times longer than diesel—while providing grid-competitive pricing with rapid deployment schedules. The acquisition of IMG Energy Solutions for $19.6 million in March 2025 added power plant EPC management and PJM utility market expertise, accelerating entry into the largest U.S. power market. The Oklo (OKLO) partnership integrates small modular nuclear reactors for baseload power, creating a complete solution that addresses both immediate distributed generation needs and long-term carbon reduction goals.

Financial Performance & Segment Dynamics

Q3 2025 results illustrate the divergent trajectories of Liberty's two businesses. Completions revenue fell 9% sequentially to $947 million, while adjusted EBITDA dropped 29% to $128 million, reflecting industry-wide pricing pressure and reduced activity. Yet the underlying metrics reveal resilience: the average profitability per fleet at this cycle's trough is higher than the midpoint of the last cycle, indicating that technology-driven efficiency gains and industry consolidation have structurally improved economics. Liberty's market share actually increased in Q2 2025 despite industry activity declines, demonstrating the "flight to quality" as customers abandon conventional fleets for next-generation technology.

The completions business generated approximately $450 million in capital expenditures during 2025, with $175 million allocated to maintenance and the remainder to replacing four to five legacy fleets with digiPrime units. This replacement cycle is strategic cannibalization—retiring less efficient equipment while maintaining horsepower through more capable systems. Management expects this to accelerate industry attrition, with Tier 2 equipment reaching end-of-life over the next two years, ultimately tightening the supply-demand balance and supporting future pricing.

Power generation, though currently a small segment, consumed approximately $200 million in 2025 CapEx. The unit economics are compelling: installed cost of $1.3-1.6 million per megawatt, with 15+ year take-or-pay contracts providing high-teens returns on capital. The business model benefits from project-specific debt financing, potentially covering 70% of capital needs for large loads, minimizing equity dilution. This is materially different from the completions business, which requires continuous reinvestment in equipment that depreciates over 5-7 years.

The balance sheet provides strategic flexibility. The July 2025 credit facility expansion to $750 million, with $253 million outstanding and $132 million available, leaves sufficient liquidity for both businesses. Net debt increased $99 million in Q3, but total liquidity of $146 million remains adequate given the company's $829 million in TTM operating cash flow. The 13% dividend increase to $0.09 per quarter signals management's confidence in long-term cash generation, even as 2025 free cash flow is expected to be modest due to the power buildout phase.

Outlook, Management Guidance, and Execution Risk

Management's commentary reveals a clear strategic pivot. Ron Gusek, who took over as CEO in February 2025 after Chris Wright became U.S. Secretary of Energy, stated that 2026 capital expenditures are "markedly shifting towards growing opportunities for power generation services." The company now expects 500 MW deployed by end-2026 and over 1 GW cumulative by end-2027, up from prior targets of 400 MW and 1 GW respectively. This acceleration reflects a sales pipeline that "more than doubled in the last 90 days" and LOIs for "more than a few gigawatts."

The completions outlook is more measured but constructive. Industry activity is expected to stabilize in 2026 after the trough in late 2024, with shale producers targeting flat production requiring modest activity improvements. Natural gas demand remains on a favorable trajectory due to LNG export capacity expansion and rising power consumption. Liberty plans to modestly reduce deployed fleet count while repositioning horsepower to support simul-frac demand from long-term partners, optimizing asset utilization rather than chasing low-margin spot work.

Execution risk centers on three variables. First, power project deployment must meet the Fall 2025 timeline for initial assets and Q1 2026 commencement of operations. Second, contract conversion from LOIs to signed Energy Service Agreements must achieve the implied gigawatt scale. Third, the completions business must maintain profitability and market share through the cyclical downturn without consuming excessive capital. Management's guidance suggests they expect to accomplish all three, but the power business is unproven at scale.

Risks and Asymmetries

The power generation thesis faces execution risks that could materially alter the trajectory. Project development delays, supply chain constraints for natural gas engines, or slower-than-expected customer conversions from LOIs to signed contracts could push revenue recognition from 2026 into 2027 or beyond. The concentration risk is significant—data center customers represent a large portion of the pipeline, and any slowdown in AI infrastructure buildout would directly impact demand. While 15+ year take-or-pay contracts provide revenue certainty, they also lock Liberty into long-term pricing that may prove suboptimal if power prices rise substantially.

On the completions side, the cyclical downturn could prove deeper than anticipated. If WTI crude falls below $60 per barrel, E&P customers could reduce activity by 10-15%, pressuring Liberty's fleet utilization and pricing. The company's technology moats provide downside protection but not immunity. Competitors like Halliburton and Schlumberger have deeper balance sheets and could engage in predatory pricing to maintain market share, squeezing Liberty's margins further. The accelerated equipment attrition that management expects may not materialize if smaller providers receive capital infusions or if private equity-backed fleets continue operating at cash-burning levels.

The capital intensity of both businesses creates a potential liquidity squeeze. While project debt can fund 70% of large power projects, the remaining 30% plus early-stage deposits must come from corporate resources. If completions cash flow deteriorates more than expected, Liberty might need to choose between power growth and balance sheet strength. Management has explicitly stated they will not use debt for share buybacks and will prioritize the fortress balance sheet, but this could mean slower power deployment if market conditions worsen.

Valuation Context

At $19.18 per share, Liberty Energy trades at a market capitalization of $3.11 billion and an enterprise value of $3.72 billion. The stock fetches 16.97 times trailing earnings, 6.23 times EBITDA, and 0.79 times sales—multiples that reflect a traditional oilfield services company in a cyclical downturn. The price-to-operating cash flow ratio of 5.25 suggests the market is pricing in modest growth at best.

Comparing these multiples to direct competitors reveals a mixed picture. Halliburton trades at 7.13 times EBITDA and 1.06 times sales, while Schlumberger commands 8.50 times EBITDA and 1.59 times sales, reflecting their global diversification and scale advantages. Baker Hughes, with its industrial and energy technology mix, trades at 11.32 times EBITDA. Patterson-UTI, the closest peer in terms of North American focus, trades at just 3.77 times EBITDA and 0.50 times sales, reflecting its negative profitability and higher cyclical risk.

Liberty's balance sheet metrics appear reasonable for its stage. The debt-to-equity ratio of 0.30 is conservative relative to Halliburton's 0.84 and Schlumberger's 0.47. The current ratio of 1.32 provides adequate liquidity, though trailing Patterson-UTI's 1.64. Return on equity of 9.21% lags Schlumberger's 15.18% and Baker Hughes's 16.89% but remains positive, unlike Patterson-UTI's negative 3.96%.

The critical valuation insight is that the power generation business is not yet reflected in these multiples. With 130 MW deployed and targets of 1 GW+ by 2027, Liberty is building a business that could generate $150-200 million in annual EBITDA at maturity (assuming $150-200/kW-year and 60% EBITDA margins), yet investors are valuing the company solely on its completions earnings. This creates potential upside asymmetry: successful power execution could justify a sum-of-the-parts valuation that re-rates the stock closer to utility or power generation peers trading at 10-12 times EBITDA, while failure would likely leave the stock range-bound with its oilfield services comps.

Conclusion

Liberty Energy stands at an inflection point where a legacy oilfield services business is funding a potentially transformational power generation platform. The completions segment, despite near-term cyclical headwinds, has proven more resilient than past downturns due to technology moats that drive customer loyalty and maintain profitability at the trough. This business will not drive growth but should generate the steady free cash flow needed to fund the power pivot without diluting shareholders.

The power generation opportunity is not a speculative side project but a strategic bet on structural demand trends that management believes could create a business rivaling completions in scale within five to eight years. The combination of rapid deployment capabilities, natural gas engine efficiency, and strategic partnerships with Oklo and IMG Energy Solutions provides a differentiated offering in a market where available capacity is nowhere near demand. The key variable is execution: converting a doubled sales pipeline into signed contracts and deployed assets on the promised timeline.

For investors, the risk/reward is asymmetric. At current valuations, the market is pricing Liberty as a cyclical oilfield services stock, ignoring the embedded optionality of the power business. If management delivers on its 1 GW target and achieves high-teens returns on capital, the stock could re-rate significantly higher. If they stumble, the completions business provides a floor, albeit one that depends on oil prices remaining above $60 per barrel. The next 12-18 months will determine whether Liberty successfully builds a generational company or remains a well-run but cyclical frac provider with a promising side business.