Jabil’s AI Inflection: Third Hyperscaler, India Alliance, and a Path to 6%-Plus Margins
Strong Q3 beat and raised FY26 outlook underscore a deepening AI infrastructure franchise, even as the stock pulls back from its peak.
JBL · Earnings Call · 2026-06-17
A Quarter That Delivered and Then Some
Jabil’s third fiscal quarter was a clear beat across the board. Revenue of $8.8B grew 12% year-over-year and came in $250M above the midpoint of guidance. Core EPS of $3.16 was up 24%, and adjusted free cash flow of $359M exceeded expectations. Management raised the full-year revenue outlook to ~$35B (up from $34B) and now expects core operating margin of ~5.8%, core EPS of ~$12.70, and FCF above $1.4B. The standout driver was AI revenue, now expected to reach ~$13.6B in FY26 — $500M higher than the March view and up ~50% from FY25. CFO Greg Hebard framed the quarter succinctly: “Demand remains strong, our teams executed well. We delivered ahead of expectations across revenue, margin, EPS, and free cash flow.” — Greg Hebard, Chief Financial Officer · 2026-06-17Intelligent Infrastructure: The Engine Accelerates
Intelligent Infrastructure revenue grew 21% y/y to $4.2B, and Q4 guidance implies ~$4.9B, up 32% y/y. Growth is broad-based: capital equipment, cloud/data center, and networking all contributed double digits, with networking up more than 50% on a strong ramp in India. Mike Dastoor noted, “We actually won our third hyperscaler in exactly that way, we actually just won our third hyperscaler, the strategy will be exactly the same.” — Mike Dastoor, Chief Executive Officer · 2026-06-17 He expects that customer to ramp to a “couple hundred million” in FY27 and reach $1B+ by FY28. Capacity expansion is keeping pace. North Carolina remains on track for volume ramp by January, with run rates of $1B–$3B over the next three years. New capacity in Memphis, Mexico, and India is being added, and the near-term ramp costs are part of the reason management only guides to 6%+ margins for FY27, even as they see upside beyond that.The Adani Pivot: A Long-Term Bet on India
The most striking new development is the announced strategic alliance with Adani Enterprises to build a multi-gigawatt AI data center infrastructure manufacturing platform in India. It covers racks, servers, storage, networking, power distribution, and thermal management. Mike was careful to temper expectations: “There is still work to be done before a definitive framework is established, we view this as a longer-term opportunity. If the partnership develops as we anticipate, fiscal 2028 is the more realistic starting point for meaningful contributions.” — Mike Dastoor, Chief Executive Officer · 2026-06-17 This is a genuine strategic pivot — Jabil is moving from a contract manufacturer to a core enabler of AI infrastructure, with a partner that brings power and local scale. It also aligns with a global theme: AI data centers are one of the most crowded crowded trades in the market, and Jabil is clearly riding that wave.Margins: The 6% Crusade
Core operating margin came in at 5.8% in Q3, up 10bps y/y, and FY26 guide implies ~5.8%. Management reiterated confidence in moving above 6% in FY27, driven by mix, operating leverage, and the Hanley acquisition (at double-digit margins). This is not a new story — it has been a recurring theme for several quarters. In the March call, Mike said, “I feel better about 6% than I have ever gotten before.” — Michael Meheryar Dastoor, Chief Executive Officer · 2026-03-18 What has changed is that the path now appears more concrete, with AI mix, new capacity utilization, and a third hyperscaler all contributing. On the balance sheet, Jabil remains in excellent shape. Liabilities to assets stood at 93.5%, but net debt/EBITDA is just 1.3x, and management remains committed to investment-grade credit. FCF for the full year is now guided above $1.4B, a significant step up.Stock: A Puzzling Drawdown
Despite the strong results and raised guidance, Jabil’s stock has pulled back roughly 19% from its June peak of $385.63. The recent 90-day tape shows a modest +4.6% return, but the drawdown suggests the market is questioning whether the AI growth rate can be sustained, or whether margins will eventually inflect. Given the forward P/E (~20x core earnings) and the massive AI opportunity, the risk-reward appears attractive, but the stock needs to prove it can execute on the FY27 margin target.“You're absolutely spot on with the capacity coming through in stages... I expect a lot of the capacity to be on board by early calendar year next year.” – Mike Dastoor, on margins