Flex’s Record Quarter Meets a 43% Drawdown

Revenue accelerated, EPS hit a record, and guidance rose — yet the stock is 43% below its June peak. The Axiom spin is the hinge.

FLEX · Earnings Call · 2026-10-28

A record quarter into a 43% drawdown

Flex’s fiscal Q2 was the kind of print that usually re-rates a stock. Revenue came in at $8.5B, up 25% year over year; adjusted EPS reached a record $1.18, up 49%; and adjusted operating margin expanded to 7.1%, up 110 basis points. The Critical power and broader CPI engine did the heavy lifting: CPI revenue rose 54%, segment margin reached 10.7%, and power margins were roughly 16%, up about 550 basis points. Management raised FY27 revenue to $34.9–35.9B and adjusted EPS to $4.84–5.16. “We delivered another fantastic quarter in Q2. Revenue growth accelerated, we expanded margins across all 3 segments and earnings reached a new record of $1.18 per share.” — Revathi Advaithi, Chief Executive Officer · 2026-10-28 Yet FLEX is down 38.7% over the last 90 trading days and 42.6% from its June 30 peak of $162.07. That is the tension: the P&L is accelerating while the stock is in a violent drawdown.

The tape is voting on the AI infrastructure trade, not the P&L

This is not a Flex-only tape problem. In the global price tape, AI data center shows up among the 90-day and 30-day decliners, down 5.4% over 30 days with only 6 advancers against 50 decliners. Data center capacity is down 8.0% over the same window, high-performance compute down 7.6%, and data center power down 5.1%. Flex sells directly into that physical-AI bottleneck, so the market is repricing the whole complex — from scarcity of supply to cost of capital, capex digestion and customer concentration. The company’s own numbers have not cracked; the multiple has.

The spin is the real new variable

The company-specific story is the separation. CPI becomes Axiom, the pure-play power, thermal and compute infrastructure company; RemainCo keeps RMS and ITS. The fresh language on the call is telling: EPC power, power chain, vertical integration, power efficiency, and innovation day are all new or newly elevated. EPC Power closed on October 14, adding engineering depth in 800-volt architecture and solid-state transformers. Revathi framed the logic as end-to-end: “if you do it piece meal, you are still gonna lose out on power efficiency because you will have all the step up steps step down that will happen ... through the power chain.” — Revathi Advaithi, Chief Executive Officer · 2026-10-28 That is a credible moat argument, but it also explains why Axiom is a capital-hungry, concentrated bet rather than a clean software-like spin.

Concentration, capex and cash are the bear case

The Q&A kept circling the same issue: Axiom’s customer concentration. Steven Fox asked whether two customers could be 60–70% of sales. Revathi did not really deny it:

you cannot walk away from the fact that hyperscalers are spending the most amount of money. If you want to be able to grow your market share, you have to grow with these hyperscalers.
Revathi Advaithi, Chief Executive Officer · 2026-10-28

That is the trade-off. The revenue visibility is real — on the prior call Kevin said the business was still “90%-plus booked” for the next three quarters — but the customer base is narrow and the capex is heavy. “we have talked about our demand see-through in this business and it remains strong. We are still at that 90%-plus booked business at this point in time.” — Kevin S. Krumm, Chief Financial Officer · 2026-07-29 The just-filed June quarter showed total revenue of $7.9B, up 21% year over year, with capex of $236M, up 77% year over year. In Q2, inventory rose 13% sequentially and 39% year over year, and “Q2 inventory was up 13% sequentially and 39% year over year driven by revenue growth.” — Kevin S. Krumm, Chief Financial Officer · 2026-10-28 Component shortages are also back in the guide, with management assuming the tight supply-demand equation persists. Free cash flow was $261M, hit by $61M of one-time spin costs; FY capex is guided to $1.5–1.6B with only ~40% FCF conversion. The balance sheet already showed effective net cash of -$2.4B, and EPC adds $4.4B of debt before the $2B Axiom convertible preferred is applied.

RemainCo is not an AI discard

The offset is that the “old” Flex is not standing still. RMS revenue rose 9%, ITS rose 22%, and the combined RMS/ITS business grew 16% — the fourth consecutive quarter of year-over-year growth. Michael Hartung tied part of that to AI pull-through outside CPI: “communications continues to be strong ... primarily from our advanced networking business, which is 1 of our high value markets and are tied to those AI-related trends for data center build out.” — Michael Hartung, Chief Commercial Officer · 2026-10-28 That matters because RemainCo is supposed to be the steadier, higher-margin industrial technology company, with high value markets like healthcare, energy infrastructure and communications. But the margin math is still mixed: on the prior call Kevin reminded investors that “our cloud margins are lower than our power margins, and we've been talking about that for the last few years.” — Kevin Krumm, Chief Financial Officer · 2026-05-06 And cooling, the third leg of the Axiom story, is still early: “cooling, our presence is nascent. It is something that we are growing into with new product launches that are planned, over the next 6 months.” — Revathi Advaithi, Chief Executive Officer · 2026-10-28

Bottom line

Flex just posted record earnings, raised guidance, and unveiled the cleanest version yet of its AI power-chain strategy. The stock, however, is acting like the AI infrastructure trade has moved from “buy the bottleneck” to “show me the cash.” That is the report’s real story: a fundamentally strong company-specific print colliding with a sector-wide de-rating. The November 10 innovation day is the next catalyst. If the tape stabilizes, the gap between Flex’s operating momentum and its share price is an opportunity; if it does not, the market is telling management that concentration and capex now matter more than another quarter of 50%-plus CPI growth.