Disclosures & Disclaimer
This report must be read with the disclosures and the analyst certifications in
the Disclosure appendix, and with the Disclaimer, which forms part of it.
Issuer of report: HSBC Bank plc
View HSBC Global Investment Research at:
14 to 16 April 2026
Find out more
HSBC Global Investment Summit
◆ With hyperscaler capex upgrades for 2026, AI trade remains
on for suppliers; Middle East disruption looks contained
◆ We dive deep into power and cooling verticals across key
suppliers and assess the shift to 800V DC architectures
◆ Prefer integrated suppliers along with cables, generators and
substation segments; 15 stocks with 9 Buy ideas; lift 7 TPs
More capex = accelerating equipment orders
In Assessing AI bottlenecks: Gas power equipment ramping up to meet demand
(19 November 2025), we focused on the booming AI-driven demand for natural gas fired
power generation equipment. In this report, we look in detail at electrical and cooling
equipment verticals in data centres. With capex growth accelerating in 2026 (see p7),
given the continued urgency of investments into AI, we peg the total addressable market
for combined power and cooling equipment in 2026e at USD156bn, up c67% y-o-y,
equating to 17-20% of total estimated capex (see p9). For supply chains, this supports
book:bill >>1 in 2026 and cements visibility on double-digit topline growth through 2030,
despite broader questions about AI funding and monetisation.
Power equipment – going higher voltage (800V) and direct current (DC)
Nvidia is driving the industry to redesign data centre architecture for higher power
density and higher voltages, which should favour the medium voltage specialists.
While the full transition to DC may take years, the main suppliers working with Nvidia
(see p15) look the more likely beneficiaries of design changes over time.
Cooling – liquid gold
As server rack power needs for next gen chips rise towards 1MW (vs c10kW current
industry average), liquid cooling has become the fastest-growing segment, driving
sector M&A and repositioning around new products (coolant distribution units, CDU:
p18). An integrated power and cooling offering could prove a competitive advantage,
though we note potential for pricing pressure, particularly from Chinese competitors.
15 supply chain stocks with 9 Buys; raise 7 TPs; ‘pure play’ Vertiv initiated at Buy
We highlight 15 suppliers of equipment to data centres. We favour the vertically
integrated suppliers, Eaton, Schneider and Vertiv (where we have just initiated with a
Buy rating and USD325 TP), which we believe are best placed to capture the growth
opportunity and lead the charge in 800V DC architecture. We also believe the cables
suppliers (Corning, Nexans, Prysmian) can benefit from combined power and data
cable demand growth. Long lead times for substation transformers support a positive
pricing environment for Siemens Energy. Lastly, backup power remains a key
component, underpinning our positive view on CAT and Weichai.
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25 March 2026
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Senior Global Industrials Analyst
HSBC Bank plc
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+44 20 7991 3464
Helen Fang*
Head of Industrials Research, Asia Pacific
The Hongkong and Shanghai Banking Corporation Limited
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+852 2996 6942
Dun Wang*, CFA, CPA (Reg. No. S1700519060002)
Analyst, A-share Industrials & Renewables Research
HSBC Qianhai Securities Limited
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+86 21 5066 2027
Stephen Bersey
Head of US Technology Research
HSBC Securities (USA) Inc.
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+1 212 525 4153
Wesley Brooks, CFA
Senior Analyst, Industrials and Autos
HSBC Securities (USA) Inc.
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not registered/ qualified pursuant to FINRA regulations
Assessing AI bottlenecks Equities Industrials
Global Data centre equipment suppliers on the up
Equities ● Industrials
25 March 2026
2
Changes to target prices
Bloomberg Price Price Market cap ___ Target price _ Upside/ ___ Rating ___
Companies ticker currency current USDm Old New downside Old New
ABB ABBN SW CHF 150,835 % Hold Hold
Caterpillar CAT US USD 316,805 % Buy Buy
Corning GLW US USD 107,016 % Buy Buy
Eaton ETN US USD 138,433 % Buy Buy
Envicool 002837 CH RMB 14,774 % Hold Hold
GE Vernova GEV US USD 229,388 % Hold Hold
Johnson Controls JCI US USD 79,385 % Hold Hold
Nexans NEX FP EUR 5,699 % Buy Buy
Prysmian PRY IM EUR 32,205 % Buy Buy
Schneider Electric SU FP EUR 158,366 % Buy Buy
Siemens SIE GR EUR 184,364 % Hold Hold
Siemens Energy ENR GR EUR 140,241 % Buy Buy
Trane TT US USD 90,826 % Hold Hold
Vertiv VRT US USD 97,899 % Buy Buy
Weichai Power 2338 HK HKD 29,610 % Buy Buy
Weichai Power A 000338 CH RMB 28,503 % Buy Buy
Source: LSEG Datastream, HSBC estimates. Current prices as of close 20 Mar 2026
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Valuation comparison
Mkt cap Share price
Price Target Upside/ _____ EV/Sales ___ ____ EV/EBITDA __ _______ PE ______ Div yield
Net debt/
EBITDA ROIC ROE
Company USDm currency Rating (local) price downside FY26e FY27e FY26e FY27e FY26e FY27e FY26e FY26e FY26e FY26e
ABB 150,835 CHF Hold % % % %
Caterpillar Inc 316,805 USD Buy % % % %
Corning Incorp 107,016 USD Buy % % % %
Eaton 138,433 USD Buy % % % %
Envicool 14,774 RMB Hold % % % %
GE Vernova 229,388 USD Hold % % % %
Johnson Controls Intl 79,385 USD Hold % % % %
Nexans 5,699 EUR Buy % % % %
Prysmian 32,205 EUR Buy % % % %
Schneider Electric 158,366 EUR Buy % % % %
Siemens AG 184,364 EUR Hold % % % %
Siemens Energy AG 140,241 EUR Buy % % % %
Trane Technologies Plc 90,826 USD Hold % % % %
Vertiv 97,899 USD Buy % % % %
Weichai Power 29,610 HKD Buy % % % %
Weichai Power A 29,606 RMB Buy % % %
Median Average % % %
Source: LSEG Datastream, HSBC estimates, prices as at close 20 Mar 2026
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The data centre power ecosystem from grid to campus
Source: HSBC. Note: HV / MV / LV denotes high / medium / low voltage. UPS = Uninterruptible Power Supply. PDU = Power Distribution Unit. HVAC = heating, ventilation and air conditioning.
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Data centre supply chain overview across power and cooling equipment verticals
Company Power management Thermal management
2025 revenue exposure to
data centre
Substation Electrical yard Electrical room Data hall Rack Inner circuit Outer circuit
HV power
MV switch
boards
Backup
power
generators
MV/LV trans
formers
LV switch
boards UPS
Power / data
cables Busway
PDU and
RPP Server Rack
Technology
Cooling
System
Heat
Rejection
System
Estimated %
of total
Implied
USDbn
Schneider Electric ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ c25%
Vertiv ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ c80%
Caterpillar ✓ c12% *
Flex ✓ ✓ ✓ ✓ ✓ ✓ ✓ c25%
Eaton ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ c25%**
Delta ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ c20%
Wesco ✓ ✓ c15%
Siemens ✓ ✓ ✓ ✓ ✓ c4%
ABB ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ c9%
Legrand ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ c26%
JCI ✓ ✓ c10%
Trane ✓ ✓ c10%
Corning ✓ c14%
Siemens Energy ✓ c5% *
GE Vernova ✓ c5% *
Mitsubishi ✓ ✓ ✓ ✓ ✓ ✓ c5%
Cummins ✓ c5%
Murata ✓ ✓ ✓ ✓ c3%
Daikin ✓ ✓ c4%
Prysmian ✓ c6%
Amphenol ✓ c5%
nVent ✓ ✓ ✓ ✓ ✓ c25%
Modine ✓ ✓ c22%
Munters ✓ ✓ c40%
Rolls Royce ✓ c2%
Weichai ✓ c1%
Nexans ✓ c2%
Source: BNEF, HSBC estimates. Note: * includes gas power equipment revenues; ** total sales ex Mobility
Equities ● Industrials
25 March 2026
6
Upwards and upwards 7
Further capex growth acceleration
in 2026e 7
How much growth of data centre
installations? 8
Capex analysis of data centre
buildout 9
An overview of the supply chain 10
Revenue opportunity for key
suppliers 12
Data Centre World key takeaways,
4-5 March 2026 12
Power – from grid to chip 13
Power from grid to chip 13
The move to 800V direct
current (DC) 14
Cooling – moving to liquid 16
Why data centre cooling is a
fast-moving industry 16
How companies are positioned 18
Potential threats to liquid cooling 19
Company section 20
Valuation and risks 34
Disclosure appendix 57
Disclaimer 60
Contents
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Equities ● Industrials
25 March 2026
Further capex growth acceleration in 2026e
We forecast a 91% increase in US cloud service provider (CSP) capex driven by AI in 2026.
Capex is “constrained” by ability, not desire to invest. We think capex is being spent as fast as it
can and is not limited by desire to spend nor balance sheets, but rather capacity to get projects
off the ground.
Capex growth continuing to accelerate
y-o-y in 2026e among top six hyperscalers
(USDbn)
2026 capex forecasts among top six
hyperscalers seeing significant ramp since
November (USDbn)
Source: Company data, Visible Alpha, HSBC estimates Source: Company data, HSBC
The pace of growth is breakneck, with 2026e capex by the top 6 hyperscalers alone rising
USD135bn since our last published forecasts in our November 2025 report. Beyond the top US
hyperscaler cloud service providers, AI model builders, neocloud providers, and sovereign cloud
initiatives are accelerating their own data centre deployments. A February 2026 report from data
centre market research firm Dell’Oro predicts total global capex in 2026 “to approach USD1trn”.1
1 “Data Center IT Capex 5-Year Forecast Report”, Dell’Oro Group, February 2026
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Upwards and upwards
◆ Hyperscaler y-o-y capex growth is accelerating in 2026e to c90% as
the rush to invest in AI show no sign of slowing
◆ We look at the ‘picks and shovels’ winners supplying power and
cooling equipment – a USD156bn opportunity in 2026e
◆ Our takeaway from meetings at a recent industry event underlines
the strong demand backdrop and the push in standardisation
Equities ● Industrials
25 March 2026
8
How much growth of data centre installations?
In our base case, we estimate the global data centre workload rising from 95GW in 2025 to
205GW by 2030, with annual additions accelerating in the outer years. We assume that 55% of
this total (50GW) will be added in the US, where data centre buildout is most concentrated.
Cumulative and annual compute additions
(GW) with 2023-30e CAGR by segment
We assume the US accounts for 55% of
global data centre additions to 2030e
Source: IEA, Legrand, HSBC estimates Source: HSBC estimates
What of Middle East disruption?
Geopolitical instability in the Middle East has escalated rapidly since 28 February. Iranian
attacks on Amazon data centres in Bahrain and UAE on 06 March underlined the threat that
conflicts pose to AI infrastructure, with data centres highlighted in the press as “a new frontier in
warfare” (Guardian, 07 March).2
Breakdown of data centre power
consumption by equipment type
Power consumption (TWh) from data
centres rising most in US and China
Source: BNEF, SemiAnalysis. Note: Assuming a power usage effectiveness of Source: IEA, HSBC
2 ‘It means missile defence on data centres’: drone strikes raise doubts over Gulf as AI superpower,
The Guardian, 07 March
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Equities ● Industrials
25 March 2026
The strikes have begun to raise doubts over the prospects of the Middle East region’s push on
data centres, led by UAE and Saudi Arabia (see GCC date centres: Digital Gold Rush,
05 January). Due to regional instability, companies are, as of March 2026, re-evaluating security
for these high-profile, energy-intensive facilities. If Middle East projects are delayed, we would
expect developers to divert capex elsewhere, leading to an overall minor slowdown in global
spending on AI infrastructure, which is concentrated in US, Asia and, to a lesser extent, Europe.
Capex analysis of data centre buildout
Data centre capex is measured in terms of cost per unit of IT compute load (in W). We use a
central capex assumption of USD50bn/GW (or USD50m/MW), though this varies widely
depending on location, scale and chip type.
Most spending goes on chips and other IT equipment. Energy capex (largely on gas turbines or
gas engines in the US) has been rising due to the constraints in supply and long grid permit
lead times. Non-IT capex, which includes the building shell and fitting out the building with all
necessary equipment, makes up 20-25%.
Breakdown of data centre capex
Capex type % of total Description
IT capex 65-75% Servers, networking, memory, and storage
Non-IT capex 20-25% Building shell, mechanical and electrical installations, including cooling, transformers and UPS
Energy capex 4-12% New generation capacity, battery storage, and transmission and distribution infrastructure
Source: IEA, HSBC
We believe capex per MW has been rising over the past 12 months as a result of: 1) cost
inflation, particularly in construction; 2) price hikes for the latest chips and higher memory costs;
3) switch to liquid cooling over air cooling; and 4) greater investment needs in the US for
separate onsite power generation.
Based on our global estimates, we peg the mid-point of the total addressable market for power
and cooling equipment in 2026e at USD156bn (USD146-162bn range), up sharply from
USD93bn in 2025. We model a broadly 70/30 split across power and cooling verticals in 2026e,
though liquid cooling is likely to tip this balance in favour of cooling over the next 1-2 years.
Vertiv order intake (USDm) Vertiv backlog (USDm)
Source: Company data, HSBC Source: Company data, HSBC
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Equities ● Industrials
25 March 2026
10
The scale of growth in the market is reflected in the high growth that suppliers are seeing in
their data centre businesses, arguably none more than Vertiv, which saw a 252% y-o-y increase
in Q4 order intake and >50% q-o-q backlog build in Q4. With procurement deals clearly getting
bigger, the main suppliers are scaling quickly to keep up with demand.
Meta fibre procurement deal has driven a re-rating of fibre suppliers
Another example of large order wins for suppliers is Corning’s ‘up to USD6bn’ fibre order
announced on 26 January by Meta to supply fibre for Meta’s data centre buildout plans. In our
view, the deal underlines the rising scale of hyperscaler procurement needs as they in turn
scale up their construction ambitions.
The deal has driven a sharp re-rating of a cohort of main global fibre suppliers (see charts below).
Fibre supplier cohort has re-rated since
January in terms of EV/EBITDA...
...and in terms of PE
Source: LSEG Datastream. Note: Cohort includes Corning, Prysmian, Furukawa,
Fujikura, Smarter Energy, Sterlite Technologies, YOFC.
Source: LSEG Datastream. Note: Cohort includes Corning, Prysmian, Furukawa,
Fujikura, Smarter Energy, Sterlite Technologies, YOFC.
An overview of the supply chain
What is in a data centre facility?
◆ IT hardware: Computing resources provide the processing, memory, local storage, and
network connectivity through servers. Routers, switches, firewalls, storage systems, servers
and application delivery controllers store and manage business-critical data and
applications. Network infrastructure connects servers (both physical and virtual), data
centre services, storage and external connectivity to end-user locations.
◆ Non-IT hardware: Data centre facilities require significant physical infrastructure to support
the centre's hardware and software. These include power subsystems, uninterruptible
power supplies (UPS), ventilation, cooling systems, fire suppression, backup generators,
and connections to external networks.
We map the key non-IT equipment verticals overleaf:
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Equities ● Industrials
25 March 2026
Overview of non-IT product categories for data centres
# Segment Notes
1 LV Power Distribution LV switchgear, power distribution units (PDUs)
2 MV Power Distribution MV switchgear and controls, distribution transformers
3 Uninterruptible Power Systems UPS products, diesel generators, batteries
4 Server Cabinets and Racks Servers, racks, storage devices, cabling, lighting systems
5 Backup Power Diesel generators, gas turbines, power infrastructure
6 Building Automation Power measurement, data connectivity
7 Security Systems Fire protection, security alarms, cyber security hardware
8 HVAC Solutions Cooling units, components for control panels
Note: LV = low voltage; MV = medium voltage.
Source: HSBC
Schematic of a data centre
Source: Vertiv, HSBC
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Equities ● Industrials
25 March 2026
12
Revenue opportunity for key suppliers
In the table below, we collate where available the addressable revenue opportunity for the main
suppliers in terms of USDm per MW of compute for AI data centres.
The top 3 suppliers have the highest opportunity per MW thanks to the breadth of integrated
power and cooling equipment portfolios.
Revenue opportunity by supplier per unit of data centre load capacity
Company USDm/MW
Vertiv
Schneider
Eaton
ABB
nVent
Source: Company data
Data Centre World key takeaways, 4-5 March 2026
On 4-5 March, we met with supply chain players in London at Data Centre World, the UK’s
largest data centre trade fair. We present our key findings below.
1. Demand appears very strong and the mood was optimistic: large supply chain players were
almost all present and keen to be seen in an event that is much larger y-o-y
2. Speed to market is still key for customers. This is limiting take-up for value chain collaborations
as customers currently show little appetite to experiment in the rush to build
3. Standardisation is increasing in importance as customers look to cut complexity and time
to build
4. Fibre and heat exchangers look like supply chain hot spots. Fibre due to market
concentration and current tightness of supply. Heat exchangers due to the focus on CDUs
(coolant distribution units)
5. High demand for ‘campus’ cables, mostly low / medium voltage (LV/MV) and sold to EPCs,
though the move to 800V could lower overall LV content
6. Liquid cooling – the big high-growth industry trend with rack power currently at 150kW and
rising to 250kW. This is driving many new entrants and more competition, with lots of new
CDU suppliers and new technology providers. Not an issue (for now at least)
7. 800V DC (direct current) is in the conversation and is changing how customers think about
data centre design, but feels like tomorrow’s threat, with current strong demand taking
centre stage. Key 800V innovations (like solid state transformers) are not yet commercially
available and we note concerns around safety. 2030 looks a realistic timeframe for
implementation of complete 800V DC data centres
8. Procurement in the US and EU is done differently. US procurement is more efficient and
integrated, with more permitting issues evident in the EU, but fewer grid constraints.
13
Equities ● Industrials
25 March 2026
Power from grid to chip
Rising size and power density of data centres is driving high growth for power equipment
providers. Power management is not simple and involves scaling down from the transmission
level (100+kV) through medium voltage (10-50kV) down to low voltage (<1kV) at the campus
level down to <1V at the chip.
Data centre power distribution is thus dominated by global electrical power equipment
producers that are experienced at serving electric utility and industrial customers with power
solutions. These ‘end-to-end’ power providers supply a number of power components across
different voltages to help fit out the power management needs of a data centre.
Breakdown of electrical equipment costs (and lead times where available) inside a data
centre
Component USD/W % of total Lead times
Substation* 3% 3-5 years
Backup generator 36%
Automatic transfer switch 1%
MV/LV transformer 4% 6-17 months
MV switchgear 3% 3-4 months
UPS 17% 2-3 months
LV switchboard 2%
Power distribution unit 12%
Remote power panel 2%
Rack power distribution unit 2%
Total equipment 83%
Installation 17%
Total 100%
Source: BNEF, HSBC. Note: based on 50MW data centre with 30kW rack density, requiring new substation. *USD/W refers to substation power capacity rather than IT
compute capacity
Bottlenecks largely in the high voltage segments
Grid equipment lead times are rising with some shortages in medium voltage equipment, but the
key bottleneck is in high voltage substations, where lead times are 3-5 years. This shortage,
along with long wait times for grid connection, has driven the rise of the BYOP (bring your own
power) model of onsite power generation. See Assessing AI bottlenecks: Gas power equipment
ramping up to meet demand (19 November), for an in-depth take on BYOP and onsite power
generation in data centres.
Power – from grid to chip
◆ Complex flow from high-voltage electric grid right down to micro-
voltage at the chip level favours end-to-end power suppliers
◆ More battery input should help alleviate power fluctuations; long lead
times for substations are driving onsite power generation
◆ NVIDIA’s push to 800V DC could determine supply chain winners
and losers in the medium term
Equities ● Industrials
25 March 2026
14
Rack density requirement of the Nvidia
roadmap (kW per rack)
New chips improve power usage efficiency
(PUE) across the data centre fleet
Source: BNEF, Uptime Institute, Nvidia. Note: Red is existing technology, grey is
technology under development
Note: PUE is the ratio between power consumption and compute capacity in a data
centre, with the theoretically most efficient figure.
Source: US DOE (2024), HSBC
The move to 800V direct current (DC)
NVIDIA is pushing ahead with its vision of AI factories. NVIDIA issued a call for collaboration on
13 October to develop new data centre architectures based on 800V direct current (DC).
Among the advantages of 800V DC NVIDIA cites: 1) better power efficiency, essential to
accommodate the next generation of power-hungry chips; 2) reduced copper, with fewer
conductors and smaller connectors needed; 3) less AC to DC conversion steps, reducing overall
power losses; 4) simplified architecture, with fewer components.
The long-term shift to 800V DC architecture in data centres
Source: BNEF
The main equipment transition to 800V DC involves the elimination of the UPS system on the
grid side (although a UPS will still be needed in the cooling system) and the introduction of the
solid-state transformer (SST).
A stopgap measure includes the introduction of a sidecar, a concept developed by Google,
Meta and Microsoft in 2024. The sidecar is a separate rack that houses the power components
for ultra-high-density racks, which have no more room for cables, backup units and other
equipment. In NVIDIA’s future designs, 800V DC power will flow all the way to the sidecar
where a rack-based converter will step the DC voltage down to the chip, hence cutting out the
power distribution unit (PDU).
Industry
avg.
NVIDIA
GB200
NVIDIA
GB300
NVIDIA
Rubin
NVIDIA
Feynman
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Challenges with the 800V DC shift
A key area is safety, as operating in 800V environments is hazardous and requires specialist
workforce, hence proper standards need to be defined. Second, the move to 800V DC
architecture first requires solid state transformers (SST), which are not yet commercially
available, so this remains a vision rather than a concrete change that we believe will materialise
commercially in 2026.
Eaton completed the acquisition of SST specialist Resilient Power Systems in August 2025 and
is targeting SST prototype products by 2027 for potential launch in 2028 (provided NVIDIA is
ready). We would expect penetration of SST to remain relatively low (20-25%) by 2030.
How suppliers are positioned
Overall, the shift to 800V appears to favour medium-voltage equipment suppliers and to
penalise vendors of traditional UPS and low-voltage power equipment. Though it may be too
early to see clear changes in demand, we note general agreement among suppliers that the
shift is driving a greater push on standardisation of equipment.
NVIDIA has flagged which suppliers are its key industry partners (see list below). It looks to us
like collaborating with NVIDIA is becoming a big competitive advantage within the power system
ecosystem (or rather the opposite, not being on NVIDIA’s collaborator list for data power
systems may be a problem). Key industry partners will, we think, at least have a say in how
products are developed and how standardisation develops, so should all be beneficiaries.
NVIDIA key industry partners for adoption of 800V DC architecture
Silicon providers Power system components Data centre power systems
AOS Bizlink ABB
Analog Devices Delta Electronics Eaton
Efficient Power Conversion Flex GE Vernova
Infineon Technologies Lead Wealth Heron Power
Innoscience LITEON Hitachi Energy
MPS Megmeet Mitsubishi Electric
Navitas Schneider Electric
onsemi Siemens
Power Integrations Vertiv
Renesas
Richtek
ROHM
STMicroelectronics
Texas Instruments
Source: NVIDIA
Equities ● Industrials
25 March 2026
16
Why data centre cooling is a fast-moving industry
Cooling is critically important in a data centre as temperature control ensures that chips perform
as expected. Cooling systems will need to adapt and be retrofitted to accommodate next gen
chips with higher power requirements, hence the growth outlook for cooling combines both
capex and opex in a data centre.
The switch to liquid cooling
Conventionally, servers are air cooled with air moving over the racks. However, the launch of
new NVIDIA chips is effectively ushering in liquid cooling as the key technology for next
generation AI servers.
Efficiency savings of liquid air IT cooling
vs air cooling
Global liquid cooling market (USDbn)
Source: BNEF, Nature. Note: PUE is power usage effectiveness Source: Eaton
The driver of this technology switch is rising rack power requirements, which are now trending
above 150kW and heading towards 1MW for chips under development. As liquid cooling moves
heat away from the racks using water or an organic liquid, it can absorb more heat than air,
making it more suitable for higher density racks. Hybrid cooling – a mix of air and water – is an
interim solution.
0
10
20
30
40
50
60
PUE* Energy Water
%
r
e
d
u
ct
io
n
0
2
4
6
8
10
2025 2028
Potential market upside
Cooling – moving to liquid
◆ Cooling is a fast-growth segment within the space, driven by
accelerating chip power needs
◆ Switch to liquid cooling is driving M&A; main suppliers see integrated
power and cooling solutions as a competitive edge
◆ We believe recent concerns over liquid cooling growth prospects
with new NVIDIA chips are overdone
17
Equities ● Industrials
25 March 2026
Eaton forecasts a 35% CAGR for the liquid cooling equipment market to 2028. According to
HVAC supplier Carrier, liquid cooling accounted for roughly 2% of overall cooling solutions
within data centres in 2024 and is expected to increase to almost c30% by 2028.
Suitability of IT cooling technologies for different rack densities
Source: BNEF, Vertiv. Note: dark grey indicates optimal use; light grey indicates at cost or efficiency limit
An overview of liquid cooling technologies
Three different primary rack-based liquid cooling technologies are currently available.
1. Rear-door heat exchangers (RDHXs). Typically used in space-constrained data centres
with a rack density of 40-60kW, RDHXs combine forced cold air with liquid-cooled heat
exchangers. RDHXs are the most similar to conventional technology.
2. Direct-to-chip (DTC) technology. Currently the most popular technology, DTC can handle
power densities of 60-120kW and be retrofitted. DTC moves a liquid mixture through a cold
plate in direct contact with power-dense chips.
3. Liquid immersion cooling. This method can cool racks with 100kW power density and up
to 150kW with the dual-phase immersion variation. With immersion cooling, servers are
placed in a tank filled with dielectric fluid. It is the least common option.
An overview of suppliers shows that a few competitors in air and hybrid cooling technologies
have also moved into supplying liquid cooling technologies.
Overview of suppliers of equipment for data centre thermal management
Company Heat rejection
system (HRS)
______________________ Technology cooling system (TCS) _______________________
Air Hybrid _____________________ Liquid ______________________
Single-phase
DLC
Single-phase
Immersion
Two-phase
DLC
Two-phase
Immersion
Daikin ✓ ✓ ✓
Eaton ✓ ✓ ✓ ✓ ✓ ✓
JCI ✓ ✓ ✓
Legrand ✓
Modine ✓ ✓ ✓ ✓ ✓ ✓ ✓
Munters ✓ ✓ ✓ ✓ ✓
nVent ✓ ✓ ✓ ✓
Schneider ✓ ✓ ✓ ✓ ✓
Trane ✓ ✓ ✓ ✓ ✓
Vertiv ✓ ✓ ✓ ✓ ✓ ✓
Source: BNEF
AI
Air
Classical non-AI Under development
Hybrid
Liquid
5kW 10k 20k 50k 75k 100kW 125kW 150kW 200kW 600kW 1,000kW
Equities ● Industrials
25 March 2026
18
How companies are positioned
We note that M&A in liquid cooling has stepped up, with deals involving six major suppliers over
the past 18 months. One highlight is Eaton’s acquisition of liquid cooling market
leader Boyd Thermal in November 2025, equivalent to projected 2026 EV/EBITDA. Eaton
has since suggested that Boyd is growing faster than initial expectations, which would imply a
lower multiple. By buying the market leader, Eaton has positioned itself with full coverage of the
liquid cooling segment.
We note earlier deals by Schneider (Motivair) and Vertiv (CoolTera) had allowed these
diversified suppliers to broaden their portfolios to include liquid cooling. Carrier, Trane and
Daikin are notable examples of HVAC focused businesses expanding into liquid cooling.
The liquid cooling market remains highly fragmented, with many suppliers, particularly in China,
providing different parts of cooling systems.
Liquid cooling M&A transactions are on the increase
Date Company Target
Price
(USDm) Comment
Mar-21 nVent CoolIT n/a Strategic agreement with liquid cooling specialist
Dec-23 Vertiv CoolTera Acquired producer of CDU and coolant distribution systems
Jan-24 Modine TMG Core n/a Acquired immersion cooling specialist
Apr-24 Carrier Strategic Thermal Labs n/a Investment partnership with cold plate maker
Oct-24 Schneider
Electric
Motivair 850 75% stake in CDU and fluid management specialist, valued at a mid-single
digit multiple of projected FY25 sales
Nov-24 Flex JetCool n/a Acquired DLC startup with CDU design
Feb-25 Carrier Zutacore n/a Investment partnership with 2-phase DLC startup
Nov-25 Daikin Chilldyne n/a Acquired DLC startup with negative pressure CDU design
Nov-25 Eaton Boyd Thermal 9,500 Acquired liquid cooling market leader ( expected sales in 2026)
for 2026 EV/EBITDA
Feb-26 Trane LiquidStack n/a Acquired 2-phase immersion cooling startup; had invested USD35m in
Series-B round in 2023
Source: Company data
The CDU is a key component
One feature that stands out in many liquid cooling acquisitions is the focus on the coolant
distribution unit (CDU). The CDU is a liquid-based closed loop that delivers heat from the
servers to a heat exchanger, where the excess heat is transferred to the heat rejection system
(a mix of mechanical chillers and cooling towers that transport the heat into the outside
environment). Depending on the design, a single CDU is either required for every rack or can
support several racks. CDUs are used in liquid cooling and hybrid air-liquid cooling systems.
Options for technology cooling and heat rejection systems in data centres
Source: BNEF. Note: DLC is direct liquid to chip
Technology cooling systems Heat rejection systems
Does not consume water
Single-
phase DLC
Two-phase
DLC
Single-
phase
immersion
Two-phase
immersion
Rear-door heat
exchanger
In-row heat
exchanger
Heat sink
Aisle
containment
Liquid
Hybrid Air
Mechanical cooling
Mechanical chiller:
air cooled
Mechanical chiller:
water cooled
Free cooling
Dry cooling
(+ adiabatic assist)
Economizer
Evaporative cooling
Consumes water
19
Equities ● Industrials
25 March 2026
Diagram of main cooling circuits in a liquid cooled data centre
Source: HSBC. Note: CDU denotes coolant distribution unit. Temperature ranges vary according to rack power density and data centre application type.
Potential threats to liquid cooling
Higher operating temperatures for future NVIDIA chips
We note market concerns following 06 January comments from NVIDIA CEO Jensen Huang that
the latest Rubin chips will operate at up to 45C and negate the need for data centre air chillers. We
believe this threat is more related to the heat transfer away from the chip (HRS) rather than the
cooling technology into the chip (TCS), hence, we see a limited threat for liquid cooling suppliers.
Threat from Chinese competition
The liquid cooling market is highly fragmented, with many suppliers, particularly in China,
providing different parts of such systems. As we noted in Envicool (002837 CH): Better sector
outlook but heated competition (26 February), analysis of 20 China local suppliers with
overseas liquid cooling orders revealed intensified competition among suppliers.
Reuters (17 March) reported that Alphabet is in talks with Envicool and other Chinese firms to
buy data centre cooling systems. This, we believe, highlights the potential for growing
competitive pressure in the liquid cooling space to impact pricing, despite the very attractive
growth outlook.
Chinese liquid cooling: valuation comps
Company BBG ticker Price Rating Target CMP Market cap _____ PE _____ ____ PB _____
Curr price USDm 2026e 2027e 2026e 2027e
Envicool 002837 CH RMB Hold 14,774
Shenling 301018 CH RMB n/r n/r 3,551
Tongfei 300990 CH RMB n/r n/r 2,077
Yimikang 300249 CH RMB n/r n/r 1,131 n/a n/a
FRD 300602 CH RMB n/r n/r 2,731
Goaland 300499 CH RMB n/r n/r 1,740
Source: HSBC estimates, Bloomberg, LSEG Refinitiv Workspace; price as of close on 20 Mar 2026
Venting/Heat recovery
Technology cooling system (TCS)
CHILLER
CDU
Facility Loop
SERVERS
30°C
20°C
24°C
34°C
Equities ● Industrials
25 March 2026
20
Company section
ABB (ABBN SW, Hold, new TP CHF62, up from CHF55)
Investment thesis: ABB, in our view, is well positioned for longer-term growth via automation
and electrification trends. Following the sale of the Robotics business, we expect to see further
margin expansion over time. CEO Morten Wierod is committed to driving the decentralisation
process – which started under the previous CEO, Bjorn Rosengren – deeper into the
organisation to achieve further margin growth.
After three years of a bolt-on M&A strategy, inorganic growth has lagged expectations (% of
y-o-y revenue growth via M&A vs 1-2% targeted). Given higher y-o-y acquisition pipelines in
each business area, we expect to see more M&A activity, which remains a focus for cash
allocation. We see Electrification as a potential area for further M&A given current high demand
in the energy transition area.
We note that ABB lags peers on software integration but we do not expect ABB to prioritise
software M&A given management’s agnostic stance on software. Our new target price is CHF62
(up from CHF55) and we have a Hold rating on the stock as we see supportive trends keeping
momentum robust, despite the high valuation level. The recent re-rating, we think, limits upside
on the stock.
Data centre exposure: ABB has c10% exposure to data centres (based on 2025 revenues),
which translates into to revenues from data centres. Apart from rack and
cooling offerings, ABB has products for other important aspects of data centres (predominantly
on the electrical side) such as power cables, busway, UPS, LV/MV switchboards, LV/MV
transformers, power distribution units and HV power. It generates c29% revenue from the USA
and c34% from Europe, which are high growth areas in terms of data centre investments.
ABB: exposure to end markets ABB’s expectations for data centre market
Source: ABB presentation, Note: based on 2025 sales. Source: ABB 2025 CMD presentation
ABB: Changes to estimates
Following Q4 2025 results, our revised FX and M&A expectations and company guidance for
2026 (comparable revenue growth of 6% to 9% in 2026; HSBCe %), we increase our top-line
estimates by 2%/4% for 2026e/27e. As the lower-margin Robotics business becomes a
discontinued operation, the higher drop-through impact (particularly in Electrification and
Automation) of revenue growth should lead to an operational EBITA margin improvement of
50-100bps for 2026-27e. In this report, we introduce 2028 estimates.
Renewables
, 3%
Distribution,
conventional
generation,
13%
O&G,
Chemicals,
13%
Data
centers, 9%
Mining and
Metals, 7%
Food &
Beverages,
3%
Other
Industry,
19%
Other T&I,
14%
Buildings,
19%
55
220
0
50
100
150
200
250
2023 2030
Data center capacity (in GW)
30
1,000
0
200
400
600
800
1,000
1,200
2023 2030
Peak rack density (in kW)
21
Equities ● Industrials
25 March 2026
ABB: Changes to estimates
__ Current estimates __ _____ y-o-y change ______ ____ ∆ vs previous _____
USDm (31 Dec end) 2025 2026e 2027e 2028e 2026e 2027e 2028e 2026e 2027e 2028e
Revenue 33,220 36,843 39,326 41,675 % % % % % na
Operational EBITA 6,314 7,523 8,055 8,704 % % % % % na
Op. EBITA margin % % % % 140bps 10bps 40bps 100bps 50bps na
EBIT 6,047 7,798 7,690 8,339 % % % % % na
Net income 4,734 6,042 5,964 6,449 % % % % % na
Reported EPS (USD) % % % % % na
Source: Company data, HSBC estimates
ABB: HSBCe vs consensus
__ Current estimates __ _____ Consensus ______ ______ ∆ vs cons _______
USDm (31 Dec end) 2025 2026e 2027e 2028e 2026e 2027e 2028e 2026e 2027e 2028e
Revenue 33,220 36,843 39,326 41,675 36,773 39,276 41,649 % % %
Operational EBITA 6,314 7,523 8,055 8,704 7,480 8,021 8,655 % % %
Op. EBITA margin % % % % % % % 10bps 10bps 10bps
EBIT 6,047 7,798 7,690 8,339 7,816 7,663 8,309 % % %
Net income 4,734 6,042 5,964 6,449 6,037 5,835 6,332 % % %
Reported EPS (USD) % % %
Source: Company data, HSBC estimates, company-sourced consensus post 4Q results
Caterpillar (CAT US, Buy, TP USD850)
Investment thesis: Caterpillar has multi-leveraged exposure to the AI buildout, supplying
engines/turbines for data centre power and construction and mining equipment across the
broader AI infrastructure value chain. Its Power & Energy business is seeing clear AI tailwinds
(including large data-centre-related orders) and management is expanding capacity, supporting
strong growth expectations into 2026/27. The Construction and Resource Industries segments
are also improving, helped by discount programmes, used-equipment destocking and a used-
equipment pricing recovery, and a mining upcycle (notably in copper and gold). While tariffs are
a headwind, pricing and volume growth should offset the impact and support margin growth.
Data centre exposure: Caterpillar has a full stack of power solutions for data centres, ie,
Caterpillar leads in diesel engines – a key backup power for data centres; and Caterpillar’s Titan
gas turbines with output of 15-39MW and gas engines benefit from spillover orders of primary
power with a shorter lead time of 10-24 months vs 36-48 months for heavy-frame turbines with
output of over 100MW. We estimate Power Gen to data centre will account for 12-15% of CAT’s
total sales in 2025-27e, respectively.
In this report, we make no changes to our estimates for CAT.
CAT: Share of global diesel engine market
for data centres, 2024
CAT: Share of global gas turbine market
(by MW), 2024
Source: Company data, HSBC Source: Global Turbine World, HSBC
30%
30%
20%
6%
7%
7%
CAT
Cummins
MTU
Mitsubishi
Weichai
Yuchai
34%
27%
24%
4%
3%
2%
6%
GE Vernova
Mitsubishi Heavy
Siemens Energy
Baker Hughes
Ansaldo Energia
CAT's Solar Turbines
Others
Equities ● Industrials
25 March 2026
22
Corning Incorp (GLW US, Buy, new TP USD146, up from USD135)
Investment thesis: We have a Buy rating on Corning, as we see material improvement in its
medium-term growth visibility, driven by hyperscaler-led AI data centre investments. Furthermore,
we believe Optical is entering a structurally stronger growth phase than in prior cycles, as AI data
centres require materially higher fibre density, faster interconnects, and more complex optical
architectures than traditional cloud deployments. This increases fibre content per data centre and
favours Corning’s high-performance optical solutions. Importantly, this demand is less discretionary
and more capacity-driven, improving volume visibility. Notably, we think the hyperscaler capex cycle
is larger and faster than the market had expected, and that Corning’s Optical segment is a direct
beneficiary. Furthermore, we believe Corning’s “tight capacity” with “demand outpacing supply”
coupled with continued DCI adoption is likely to materially drive growth in 2026 and beyond.
The company’s upgraded Springboard plan (incremental annualised sales of USD11bn by 2028,
up from USD8bn) meaningfully improves medium-term revenue visibility, while the long-term
risk-shared customer agreements limit downside capital risk and support further ROIC expansion.
Data centre exposure: Corning plays a critical role in powering AI network infrastructure,
supplying high value-added products for AI cluster buildouts. In 2025, Corning’s Enterprise
business grew 61% y-o-y, to , with two-thirds of revenue from hyperscalers (which
grew at a faster pace). The clearest proof point is the Meta USD6bn multi-year contract to
supply advanced fibre optic cable and connectivity hardware for Meta’s AI data centre buildout,
which we noted previously (Material contracts underway, 29 October 2025). Furthermore,
management confirmed several Meta-sized deals are being discussed and these deals are not
yet reflected in the revised Springboard plan and that the potential financial impact from these
deals is likely to be skewed towards FY27-28.
Corning: Changes to valuation
In this report, we make no changes to our estimates for Corning. However, given our above peer
group non-GAAP EPS 4-year CAGR estimate of % for Corning (versus 10-15% typical for its
peers), we lift our PE target multiple to (from ) to reflect the scale and durability of the
AI data centre buildout now underway. Corning trades at a next 12-month PE multiple
versus a PE multiple for the sector. Our new target price of USD146 (from USD135) is
based on 47x our next 12-month non-GAAP EPS estimate of (unchanged). Our TP
implies c17% upside; we retain our Buy rating given the many positives we see from Corning’s
exposure to the AI revolution.
Eaton (ETN US, Buy, new TP USD420, up from USD405)
Investment thesis: Eaton has favourable end-market exposure and stands to benefit from
various megatrends including infrastructure spending, reindustrialisation, electrification, energy
transition, digitalisation, and green regulations. We continue to like Eaton for its good capital
allocation, favourable end-market mix, and strong cash flow generation. We believe Eaton’s
good organic growth profile is not fully reflected in the price, with the shares at just a c2%
premium to the S&P 500 Industrials (vs a c21% premium over the past three years). We expect
greater visibility on higher-than-average earnings growth to help restore Eaton’s valuation
premium over time.
Data centre exposure: Eaton has around 20-25% exposure to data centres and it is one of the
strongest players in the field of data centre product and solutions offerings. With its recent
acquisition of Boyd Thermal, Eaton now has a presence in almost all data centre verticals
except servers, generators and high voltage power. Its strong presence in the American market
is also a positive.
23
Equities ● Industrials
25 March 2026
Eaton’s end-market exposure US data centre capacity expectation (GW)
Source: Company 4Q 2025 presentation, Note: * implies ex. Mobility revenue, **
implies Machinery OEMs
Source: Eaton 2025 investor conference presentation
Eaton: Changes to estimates
Based on our revised FX and some minor end-market adjustments, our estimates for Eaton
reflect slight changes.
Eaton: Changes to estimates
___ HSBC Estimates _____ _____ y-o-y change ______ ____ ∆ p i _____
USDm (31 Dec end) FY25 FY26e FY27e FY28e FY26e FY27e FY28e FY26e FY27e FY28e
Revenue 27,448 30,373 32,915 35,402 % % % % % %
Segment Profit 6,713 7,571 8,470 9,405 % % % % % %
Segment Profit Margin % % % % 50bps 80bps 80bps 0bps 20bps 0bps
PTP 4,931 5,769 6,689 7,659 % % % % % %
HSBC EPS (USD) % % % % % %
Source: Company data, HSBC estimates
Eaton: HSBC vs consensus
___ HSBC Estimates _____ _____ Consensus ______ ______ ∆ c _______
USDm (Dec 31 end FY25 FY26e FY27e FY28e FY26e FY27e FY28e FY26e FY27e FY28e
Revenue 27,448 30,373 32,915 35,402 30,244 33,006 35,587 % % %
Segment Profit 6,713 7,571 8,470 9,405 7,527 8,447 9,292 % % %
Segment Profit Margin % % % % % % % 0bps 10bps 50bps
PTP 4,931 5,769 6,689 7,659 5,757 6,696 7,548 % % %
HSBC EPS (USD) % % %
Source: Company data, HSBC estimates and calculations, Visible Alpha consensus
Envicool (002837 CH, Hold, TP )
Investment thesis: Envicool is a major player in data centre temperature control systems with
a c15% market share in China data centre liquid cooling products in 2024. Major customers
include Tencent, Alibaba and leading China telecom operators, Huawei, and US tech giants.
However, we think Envicool’s first-mover advantage and strength in solution capability of its
liquid cooling business has yet to be proven, and the strong heating competition could limit its
future market share and margin performance.
Data centre exposure: If Envicool could secure a 5% share of the estimated NVIDIA NVL
server liquid cooling equipment market, we estimate the NVIDIA NVL series alone could
contribute RMB2,479m, RMB6,904m and RMB8,585m revenue in 2026e, 2027e and 2028e,
respectively. Besides the NVIDIA supply chain, we continue to see opportunities for Envicool
from other global leading ASIC-related demand.
In this report, we make no changes to our estimates for Envicool.
Data
Center
Commercial
&
Institutional
Industrial
and
MOEM**
Utility
Residential
Commerical
Aerospace
Defense
Aerospace
cUSD24bn*
21
74
132
0
50
100
150
200
250
2023 2028
Low
end
High
end
Equities ● Industrials
25 March 2026
24
Envicool: Revenue breakdown (2024) Envicool: China data centre liquid cooling
market share (2024)
Source: Company data, HSBC Qianhai Securities Source: Company data, CDCC, HSBC Qianhai Securities
GE Vernova (GEV US, Hold, TP USD740)
Investment thesis: GE Vernova has exposure to the rapidly growing gas turbine market
through its Power division. In the Power business, gas makes up 84% of 2026e revenues and
44% of 2026e group revenues. A high backlog coupled with strong equipment sales growth with
high-margin service contracts provide a cushion for future revenue streams. Our Hold rating is
based on: 1) our belief that GEV as a diversified power and grid equipment supplier is likely to
benefit from improving gas turbine demand and secular growth for grid equipment; 2) as the US
market leader, we believe the company is well placed to benefit from a gas turbine upcycle and
positive pricing for gas turbine servicing; 3) although we think GEV is well placed to benefit from
rising US onshore wind demand, we see risks of higher-than-expected costs to deliver its
offshore wind backlog, along with policy headwinds in the US; and 4) we consider its valuation
to be high, which implies limited further upside.
Data centre exposure: In its 4Q 2025 call, GEV stressed that it is seeing demand across data
centre equipment, both with traditional customers globally and hyperscalers primarily in the US
market. Of the total orders of (in 2025) in the Electrification business, >USD2bn orders
came from data centres, which more than tripled compared to 2024 orders. This implied a data
centre share of more than 10% of Electrification orders in 2025 and about 3-4% of group orders.
In this report, we make no changes to our estimates for GE Vernova.
GE Vernova: HSBC vs consensus
__ Current estimates __ _____ Consensus ______ ____ Vs consensus _____
USDm (31 Dec end) 2025 2026e 2027e 2028e 2026e 2027e 2028e 2026e 2027e 2028e
Revenue 38,068 44,763 50,535 57,383 44,602 50,350 56,830 0% 0% 1%
Adjusted EBITDA 3,196 5,684 8,309 11,308 5,786 8,575 11,716 -2% -3% -3%
--Adj. EBITDA margin % % % % % % % -30bps -60bps -90bps
Operating income 1,389 4,287 6,459 9,368 4,495 7,061 9,813 -5% -9% -5%
--Op. income margin % % % % % % % -50bps -120bps -90bps
Pre-tax profit 2,828 5,287 7,492 10,433 5,395 7,913 10,729 -2% -5% -3%
Net Income 4,883 4,036 5,720 7,966 4,030 6,062 8,273 0% -6% -4%
EPS (USD) -1% -7% -7%
Source: Company data, HSBC estimates, Visible Alpha consensus
Energy
storage
33%
IDC
53%
Communication base
station, grid equipment
and charging pile
5%
Rail transit, EV
and others
9%
Envicool
15%
Others
85%
25
Equities ● Industrials
25 March 2026
Johnson Controls (JCI US, Hold, TP USD127)
Investment thesis: We believe Johnson Controls’ growth prospects are compelling, boosted by
its strong market leadership in HVAC and building automation. The company is well positioned
to benefit from structural demand in faster-growing end markets, including data centres,
healthcare facilities (such as hospitals), and hospitality – segments that continue to prioritise
energy efficiency, reliability, and smart-building capabilities. However, its valuation has re-rated
to 29x FY2026e PE, from 21x NTM PE a year ago, and is no longer in line with its peers. We
believe that further upside would likely require a step-up in organic growth.
Data centre exposure: Johnson Controls is considered a leader in thermal management and it
estimates that data centres represent c10% of group sales. We believe this is mostly comprises
traditional air cooling technology and chillers for liquid cooling systems, and ongoing services
related to these systems. The company introduced a CDU for liquid cooling in September 2025.
In this report, we make no changes to our estimates for Johnson Controls.
Nexans (NEX FP, Buy, TP EUR140)
Investment thesis
We continue to see opportunity in Nexans’ disciplined margin growth strategy, and upside
potential if the company can leverage its strong balance sheet for synergistic growth and
product differentiation proves effective. We think risks related to delays and to revenue security
surrounding the Great Sea Interconnector (GSI) project are well understood by investors. We
retain our Buy rating, seeing plenty of appeal in the company’s electrification strategy, which we
believe can continue to drive share price growth.
Data centre exposure: Nexans offers a comprehensive portfolio of electrical infrastructure
products for data centres. The company supplies cables across all voltage levels: low voltage for
flexible in-building distribution to critical equipment (UPS, generator sets); medium voltage from
substations and across data centre buildings; and high voltage to connect sites to the grid.
While Nexans doesn’t yet quantify sales generated from data centres, the group identifies data
centres as a key growth driver in the near term. In terms of geographical exposure, the group
has a meaningful presence in North America by way of its Canadian operations. European
markets remain relatively small but are likely to witness good progress in the next 2-3 years.
Nexans: Changes to estimates
We update our estimates post Q4 2025 results and factor 2026 guidance into our model. We
now assume complete divestment of the Industry and Solutions business, with the sale of
Autoelectric expected to be completed by mid-2026. As a result of this, our sales estimates are
down by 7-8% vs our previously published forecasts and our adjusted EBITDA estimates are
down by 3-8% for the same period. Net income for 2026e includes income from discontinued
operations (from the sale of Autoelectric) due to which it is 3% higher our previous estimates. In
this report, we introduce our 2028 estimates.
Nexans: Changes to estimates
_______ Current estimates _____ Previous estimates _ ___ % Change ____
EURm 2025a 2026e 2027e 2028e 2026e 2027e 2026e 2027e
Sales (at current metal prices) 7,810 7,882 8,241 8,667 8,275 8,586 -5% -4%
Sales (at constant metal prices) 6,098 6,382 6,741 7,167 6,925 7,236 -8% -7%
Organic growth % % % % % % % -140bps 110bps
FX and others % % % % % % % 140bps -110bps
Adj EBITDA 728 773 868 980 842 932 -8% -7%
Adj EBITDA margin % % % % % % 0bps 0bps
Adjusted EBIT 440 518 603 715 610 691 -15% -13%
Adjusted EBIT margin % % % % % % -70bps -60bps
Net Income 351 349 359 451 339 402 3% -11%
EPS 3% -11%
Source: Company data, HSBC estimates. Note: Margins are calculated on sales at constant metal prices
Equities ● Industrials
25 March 2026
26
HSBC vs consensus
We are broadly in line with consensus on sales for 2026-27e and c2% higher for 2028e. Our
new adjusted EBITDA estimates remain in line with street expectations.
Nexans: HSBC vs consensus
EURm ___ Current estimates ___ ____ Consensus _____ _____ % change ______
2025a 2026e 2027e 2028e 2026e 2027e 2028e 2026e 2027e 2028e
Sales (at constant metal prices) 6,098 6,382 6,741 7,167 6,377 6,712 7,002 0% 0% 2%
Change yoy% % % % % % % % 10bps 40bps 200bps
Organic growth % % % % % % % % 0bps 0bps -80bps
FX and others % % % % % % % % 10bps 30bps 280bps
Adj EBITDA 728 773 868 980 771 865 978 0% 0% 0%
Adj EBITDA margin % % % % % % % 0bps 0bps -30bps
Adjusted EBIT 440 518 603 715 496 594 709 4% 2% 1%
Adjusted EBIT margin % % % % % % % 30bps 10bps -20bps
Reported EBIT 376 468 563 685 454 552 667 3% 2% 3%
Reported EBIT margin % % % % % % % 20bps 10bps 0bps
Net Income 351 349 359 451 349 358 446 0% 0% 1%
EPS -1% 0% 0%
Source: Company data, HSBC estimates, Visible Alpha consensus. Note: Margins are calculated on sales at constant metal prices
Prysmian (PRY IM, Buy, TP EUR115, up from EUR105)
Investment thesis
Our Buy rating on Prysmian is based on: 1) two-fold growth driver for fibre for both data centre
scale-up and scale-out. US fibre shortages should provide upward pressure to Digital Solutions’
margin in 2026-27e; 2) beneficiary of copper and aluminium tariffs. As Prysmian is less reliant
on copper and aluminium imports compared to its peers in the US, the company is a beneficiary
of US import tariffs on copper and aluminium via market share gains through 2026. A key risk
would thus be removal of these tariffs; 3) Transmission market leader. Prysmian’s EUR17bn HV
backlog provides ample topline and margin growth visibility, anchoring credibility around the
company’s 2028 targets; and 4) potential upside from a US listing. On the Q3 results call,
management suggested a US listing is important and may be back on the table in 2026. A US
listing could drive a higher valuation range for the Milan-listed shares.
Data centre exposure: Prysmian offers a comprehensive, end-to-end portfolio for data centres,
covering everything from high-voltage grid connections to the specialised internal cabling
required for high-density AI workloads. Following the acquisitions of Encore Wire and Channell,
Prysmian has evolved from a component supplier to a full-scale solutions provider, capable of
meeting the complete infrastructure needs of data centres.
The group achieved EUR1bn in direct sales and EUR500m in indirect sales to data centres in
2025, with expectations to reach the EUR2bn target (10% of total revenue) in 2026.
27
Equities ● Industrials
25 March 2026
Prysmian: Data centre solutions and products
Category Solutions Specific products
Digital Solutions & Optical
Connectivity
High-Density Optical Connectivity High-count fibre cables with miniaturized diameters for
campus and inter-building links.
Next-Gen Data Transfer Hollow-Core Fibre (HCF) technology, which uses an empty
core to increase data speeds by nearly %.
Connectivity Hardware Optical fibre vaults, thermoplastic enclosures, and
metal enclosures.
Multimedia & Inside Plant (MMS) Copper and fibre optic solutions for indoor data management.
Electrification & Internal Power "Last Mile" Electrification Medium-voltage (MV) and low-voltage (LV) cables for
equipment and building connections.
High-Capacity Internal Distribution MV cables designed to reach server racks directly in large
facilities (2, MW to 5, MW).
Installation Efficiency Pre-terminated HV and MV cables and accessories for faster
field deployment.
Jobsite Productivity Barrel Pack and Mega Coil cable management technologies.
Grid Connection & Transmission High-Voltage (HV) Transmission HV cable systems connecting hyperscale sites to renewable
energy sources.
Grid Reinforcement Infrastructure cables to strengthen networks under high data
centre demand.
Monitoring & Sensing PRY-CAM and Alesea services for secure energy and data
connection monitoring.
Source: Company data, HSBC
Prysmian: Changes to estimates
We update our estimates post Q4 2025 results and factor 2026 guidance into our model. We
increase our sales estimates by 1-3% for 2026e-28e. Our adjusted EBITDA estimates are
largely unchanged for 2026e and up by 2-5% for 2027e-28e. These changes are driven by our
improved expectations in Electrification and Transmission.
Prysmian: Changes to estimates
______ HSBC estimates______ _ Previous estimates _ _____ Change % _____
EURm 2025a 2026e 2027e 2028e 2026e 2027e 2028e 2026e 2027e 2028e
Sales 19,650 21,249 22,644 24,097 20,960 22,163 23,314 1% 2% 3%
Adj. EBITDA 2,398 2,745 3,056 3,398 2,733 2,987 3,238 0% 2% 5%
Adj EBITDA Margin, % % % % % % % % -10bps 0bps 20bps
Adj EBITDA Margin* (at std metal prices) % % % % % % % -40bps -20bps 0bps
Adj. EBIT 1,798 2,160 2,462 2,787 2,411 2,676 2,918 -10% -8% -4%
Adj. EBIT Margin, % % % % % % % % -130bps -120bps -100bps
Reported EBIT 1,928 1,995 2,322 2,662 2,246 2,536 2,793 -11% -8% -5%
Net Income 1,270 1,265 1,481 1,824 1,418 1,629 1,817 -11% -9% 0%
Reported EPS -10% -8% 1%
Source: Company data, HSBC estimates
HSBC vs consensus
We are a touch below consensus on sales for 2026e-28e and 10-20bps above on adjusted
EBITDA margin for the same period.
Prysmian: HSBC vs consensus
____ Current estimates _____ _____ Consensus ___ _____ vs cons % _____
EURm 2025a 2026e 2027e 2028e 2026e 2027e 2028e 2026e 2027e 2028e
Sales 19,650 21,249 22,644 24,097 21,466 22,871 24,270 -1% -1% -1%
Adj. EBITDA 2,398 2,745 3,056 3,398 2,757 3,071 3,378 0% 0% 1%
Adj EBITDA Margin, % % % % % % % % 10bps 10bps 20bps
Adj EBITDA Margin (at std metal prices) % % % %
Adj. EBIT 1,798 2,160 2,462 2,787 2,105 2,385 2,561 3% 3% 9%
Adj. EBIT Margin, % % % % % % % % 40bps 40bps 100bps
Reported EBIT 1,928 1,995 2,322 2,662 2,025 2,302 2,546 -1% 1% 5%
Net Income 1270 1265 1481 1824 1,299 1,513 1,708 -3% -2% 7%
Reported EPS -5% -4% 4%
Source: Company data, HSBC estimates, Visible Alpha consensus
Equities ● Industrials
25 March 2026
28
Schneider Electric (SU FP, Buy, new TP EUR285, up from EUR275)
Investment thesis: We continue to think Schneider is well positioned for future growth from
long-term trends, including electrification, digitalisation, automation, energy efficiency/
sustainability, and growth in software, supported by growth in its end markets (buildings, industry,
infrastructure, and data centres) of 6-7% through 2030e. Schneider has a medium-term target of
organic revenue CAGR of 7-10% (2025-30), which means it wants to outgrow the industry, an
indication of its strong execution capabilities. We continue to expect Schneider to achieve margin
gains supported by consistent execution and productivity gains from an experienced and capable
management team (Schneider’s target is to achieve cumulative organic expansion in adjusted
EBITA margin of +250bps between 2026 and 2030.
Data centre exposure: Schneider has c30% exposure to data centres & networks and expects
this end market to grow more than 10% CAGR between 2025 and 2030. Schneider expects a
surge in computing power demand, 800V DC demand, power and liquid cooling increased
efficiency and convergence of white/grey space to be some of the supportive trends in this
growth. Like Eaton, it has a strong presence in the data centre vertical, apart from server,
generators and high voltage power verticals. Schneider has a strong presence in the North
American market; it generates c38% of its revenue from North America and c26% from Europe.
Schneider’s end market exposure based
on 2025 orders
Schneider’s end market growth
expectations (CAGR 2025-30)
Source: Company 2025 results presentation Source: Company 2025 results presentation
Schneider: Changes to estimates
Following Q4 2025 results and 2026 company guidance for organic revenue growth, FX and
M&A assumptions, we increase our 2026e-27e topline estimates by 1-2%. For 2026e, we
forecast organic revenue growth of % (company guidance 7-10%, company-sourced cons
%). We make some minor adjustments to our estimated 2026/27 adjusted EBITA margin,
Schneider is guiding for an adjusted EBITA margin of % to % for 2026; we are at %
(cons %). We make negative changes to our 2026/27 net income compared to adjusted
EBITA, as we incorporate higher net financial charges to fund acquisitions and have higher
restructuring charges as guided by the company. In this report, we introduce our 2028 estimates.
Data center
& networks,
30%
Buildings,
29%
Industry,
27%
Infrastructure,
14%
0%
2%
4%
6%
8%
10%
12%
14%
Data center &
networks
Buildings Industry Infrastructure
>10%
4%-5% 4%-5%
5%-7%
29
Equities ● Industrials
25 March 2026
Schneider: Changes to estimates
__ Current estimates __ _____ y-o-y change ______ __ Change vs previous __
EURm (31 Dec end) 2025 2026e 2027e 2028e 2026e 2027e 2028e 2026e 2027e 2028e
Revenues 40,152 43,202 46,778 50,434 % % % % % na
Adj. EBITA 7,520 8,401 9,423 10,500 % % % % % na
Margin (%) % % % % 70bps 70bps 70bps -10bps 10bps na
EBIT 6,699 7,594 8,666 9,858 % % % % % na
Net Income 4,163 5,238 6,141 7,084 % % % % % na
EPS (EUR) % % % % % na
Source: Company data, HSBC estimates and calculations
Schneider: HSBC vs consensus
_ Current estimates __ _____ Consensus ______ _______ Vs cons ________
EURm (31 Dec end) 2025 2026e 2027e 2028e 2026e 2027e 2028e 2026e 2027e 2028e
Revenues 40,152 43,202 46,778 50,434 43,084 46,671 50,341 % % %
Adj. EBITA 7,520 8,401 9,423 10,500 8,348 9,352 10,376 % % %
Margin (%) % % % % % % % 10bps 10bps 20bps
EBIT 6,699 7,594 8,666 9,858 7,600 8,627 9,762 % % %
Net Income 4,163 5,238 6,141 7,084 5,271 6,138 7,039 % % %
EPS (EUR) % % %
Source: Company data, HSBC estimates, company-sourced consensus
Siemens AG (SIE GR, Hold, new TP EUR240, from EUR235)
Investment thesis:
1. End of destocking cycle limits downside risks. We believe the destocking cycle in
automation in Siemens’ key markets, China and Germany, has reached an end, and we
expect some – albeit gradual – recovery in Digital Industries (DI) automation order intake
through 2HFY26. We also note that the launch of products fully developed in China in FY25
could prevent market share losses in China to local competitors; and the compelling growth
potential in Smart Infrastructure (SI; which benefits from electrification trends) could lead to
margin growth.
2. Further portfolio streamlining options. Siemens has almost completed the
transformation of its Portfolio businesses (PoC) with the sale of Innomotics and
the USD300m sale of its airport logistics business. We see scope for value creation via
further internal transformation, as selling down stakes in Siemens Energy (ENR GR,
, Buy) and Healthineers (SHL GR, , Buy) as part of a financing
strategy is an option. Siemens’ stated position is to bring down its stake in Siemens Energy
to zero at some point and to bring down the stake in Siemens Healthineers to a significant
minority (November 2025 CMD) from the current holding of 67%.
3. Altair acquisition makes strategic sense but is expensive, in our view. The high-priced
acquisition of Altair (USD113 per share, for an EV of cUSD10bn, equivalent to 14x sales
and 31x adj EBITDA on FY25 metrics) should cap returns, which tempers our overall
enthusiasm. Siemens’ synergy targets from Altair look ambitious, in our view. In order to
become a One Tech company, Siemens invested a lot strategically: in FY21-FY25, total
R&D expense was EUR29bn, EUR12bn of capex was invested and EUR32bn incurred for
acquisitions (EUR18bn ex Varian, of which EUR14bn was spent only in FY25 for Altair and
Dotmatics to bolster DI).
Data centre exposure: In Q1 FY26, Siemens stated that total data centre orders were
, which formed about 25% of SI orders or c8-9% of Group orders. The company
expects the data centre addressable market CAGR to be c11% in FY25-FY30e, led by the AI
industrial revolution and AI factories.
Equities ● Industrials
25 March 2026
30
Siemens AG: Changes to estimates
Following Q1 FY26 results, company guidance for Q2 and FY26, revised FX and M&A
assumptions, we marginally trim our topline estimates by 0-1% for FY26e/28e. We are now
slightly more sanguine about DI and SI margins, hence, we slightly increase our industrial
business profit margin by c10bps for FY27e/28e. Our below EBIT line profit figures grow slightly
more than the growth of industrial business profit as the company reported a EUR200m gain in
Q1 related to Fluence Energy shares.
Siemens AG: Changes to estimates
__ HSBC estimates ___ _____ y-o-y change ______ __ Change vs previous __
EURm (30 Sept end) FY25 FY26e FY27e FY28e FY26e FY27e FY28e FY26e FY27e FY28e
Revenue
--Industrial business 76,595 80,189 85,093 90,260 % % % % % %
--Group 78,914 82,427 87,337 92,504 % % % % % %
Profit
--Industrial business 11,766 12,680 14,618 16,252 % % % % % %
--Profit margin % % % % 50bps 140bps 80bps 0bps 10bps 10bps
--Underlying Industrial business 12,123 13,080 14,813 16,432 % % % % % %
--Profit margin % % % % 50bps 110bps 80bps 10bps 10bps 10bps
PTP (ex-item) 10,063 11,236 12,946 14,645 % % % % % %
Net income 9,621 8,280 9,565 10,836 % % % % % %
Reported Basic EPS (EUR) % % % % % %
Source: Company data, HSBC estimates
Siemens: HSBC vs consensus
__ HSBC estimates ___ _____ Consensus _______ _____ vs consensus______
EURm (30 Sept end) FY25 FY26e FY27e FY28e FY26e FY27e FY28e FY26e FY27e FY28e
Revenue 78,914 82,427 87,337 92,504 82,853 88,602 91,990 % % %
Revenue (IB) 76,595 80,189 85,093 90,260 80,522 86,268 89,210 % % %
Profit
--Industrial business 11,766 12,680 14,618 16,252 12916 14576 15623 % % %
--Profit margin % % % % % % % -20bps 30bps 50bps
Pre-tax profits 12,889 12,033 13,776 15,485 12,054 13,830 15,031 % % %
Net income after minorities 9,621 8,280 9,565 10,836 8,034 9,302 10,149 % % %
EPS reported % % %
Source: Company data, HSBC estimates, Visible Alpha consensus
Siemens Energy (ENR GR, Buy, new TP EUR190, up from EUR180)
Investment thesis: Our Buy rating on Siemens Energy is based on the following factors:
1) it is a leading supplier of equipment and services across the global energy sector, benefiting
from optionality on multiple future energy opportunities that we consider to be attractively
valued; 2) we believe there is a solid outlook for ENR’s core business (ex-Siemens Gamesa).
Gas Services (GS) continues to deliver high-margin recurring revenue streams and benefits
from a demand rebound for new gas-fired power equipment. Grid Technologies (GT) stands to
benefit from the rising urgency for new power transmission infrastructure, driven by the global
acceleration in electrification trends and renewables installations. We expect SE’s
Transformation of Industries division to also benefit in the medium term from industrial
decarbonisation trends; 3) execution of the turnaround plan at Siemens Gamesa (SG), targeting
breaking even by end-FY26 once all onshore turbine quality issues have been successfully
addressed and with a simpler turbine portfolio and a leaner structure; this should drive greater
confidence in long-term earnings growth. We note that turbine interventions to address quality
issues are so far progressing to plan and onshore market re-entry is not core to FY26 ambitions;
and 4) we expect returns to shareholders. We see the announcement of a dividend of
per share for FY25 as a positive start of shareholder returns.
31
Equities ● Industrials
25 March 2026
Data centre exposure: Of its total committed gas turbine backlog of 80GW, 22GW is related to
data centres. In FY25, SE booked about EUR2bn total orders from data centres, which
represented about 3-4% of total orders. In Q1 FY26, the US market contributed several data
centres related orders, amounting to high triple-digit million euros.
Siemens Energy: Changes to estimates
In this report, we marginally adjust our estimates, as we update our FX estimates, and now
have a slightly more positive view of the margin progression of Grid Technologies business,
which leads to an overall margin increase by 20-30bps for FY27e/28e.
Siemens Energy: Changes to estimates
__ HSBC estimates ___ ___ HSBC old estimates ___ Change vs previous _
EURm (30 Sept end) FY25 FY26e FY27e FY28e FY26e FY27e FY28e FY26e FY27e FY28e
Revenue 39,077 43,335 48,971 55,290 43,335 48,946 55,206 0% 0% 0%
Profit before special items 2,355 4,865 6,565 8,560 4,858 6,501 8,365 0% 1% 2%
--margin % % % % % % % 0bps 10bps 30bps
PBT 2,213 4,759 6,429 8,429 4,752 6,365 8,234 0% 1% 2%
Net profit (to shareholders) 1,415 3,759 4,833 6,086 3,742 4,772 5,846 0% 1% 4%
Source: Company data, HSBC estimates
Siemens Energy: HSBC vs consensus
__ HSBC estimates___ _____ Consensus _______ __ Vs consensus ___
EURm (30 Sept end) FY25 FY26e FY27e FY28e FY26e FY27e FY28e FY26e FY27e FY28e
Revenue 39,077 43,335 48,971 55,290 43,460 49,223 55,718 % % %
Profit BSI 2,355 4,865 6,565 8,560 4,864 6,633 8,655 % % %
--Profit BSI margin % % % % % % % 0bps -10bps -10bps
Net income to Siemens Energy 1,415 3,759 4,833 6,086 3,374 4,666 6,108 % % %
Basic EPS (EUR) % % %
Source: Company data, HSBC estimates and calculations, Visible Alpha consensus
Trane Technologies (TT US, Hold, TP USD470)
Investment thesis: We view Trane’s long-term growth outlook as compelling, underpinned by
the ongoing replacement of inefficient legacy HVAC systems with highly efficient equipment
offering short payback periods, exposure to faster-growing end-markets – particularly data
centres – and a resilient stream of recurring services revenue. Additionally, we see the potential
for it to benefit from an eventual recovery in residential and transport refrigeration demand,
although there is some risk that recent geopolitical events may delay the recovery should higher
oil prices lead to higher interest rates and lower consumer confidence. That said, in our view,
much of this favourable outlook is already reflected in the current valuation, with the shares
trading at 28x 2026e PE.
Data centre exposure: Trane is considered a leader in thermal management. We estimate that
data centres represent around 10-15% of group sales, mostly composed of traditional air
cooling technology and chillers for liquid cooling systems, as well as ongoing services related to
these systems. The company introduced its CDU in early 2025. The acquisition of LiquidStack
on 3 March 2026 will increase its exposure to liquid cooling technology, including to CDUs and
immersion cooling (both single and two phase).
In this report, we make no changes to our estimates for Trane.
Equities ● Industrials
25 March 2026
32
Vertiv (VRT US, Buy, TP USD325)
Investment thesis: We view Vertiv as one of the most compelling ways to gain exposure to the
attractive AI infrastructure theme as it is a leading provider of critical data centre infrastructure
and integrated solutions. We expect a strong multi-year demand backdrop as global IT workload
rises from ~95GW in 2025 to ~205GW by 2030, alongside accelerating AI capex, positioning
Vertiv to benefit materially. Structural shifts such as higher rack densities, more complex cooling
needs (including liquid cooling), and a move towards 800V DC architectures should favour
scaled players that can deliver integrated solutions and prefabricated modular systems, where
Vertiv believes it can capture per MW of IT workload. While the shares have
re-rated sharply to 40x PE, we still see the valuation as reasonable versus growth, with a
2026-28e PEG of on our estimates.
Vertiv revenue exposure, 2025 Company estimates revenue opportunity
(USDm per MW IT workload)
32%
30%
10%
5%
23%
62%
18%
20%
Product Region
Pow er
management
Thermal
management
Serv ices
IT Sy stems
Infrastructure
APAC
EMEA
Americas
Source: Company data Source: Company data, HSBC estimates
Data centre exposure: Vertiv provides a full-stack (“one-stop-shop”) proposition, with a
comprehensive portfolio spanning power distribution and thermal management solutions. The
company has the highest data centre exposure among equipment providers, with c80% of
revenue derived from this vertical, versus 25% or less for its closest peers. It also has the highest
company-estimated revenue opportunity per MW of IT workload added at .
In this report, we make no changes in our estimates for Vertiv. Please see our initiation report:
Hyper growth, 24 March 2026.
Weichai (2338 HK/000338 CH, Buy/Buy, TP
Investment thesis: We like Weichai because it’s a beneficiary of data centre buildouts, as a
key backup power engine supplier and SOFC manufacturer. Beyond data centres, Weichai is
also the leading powertrain supplier in the China truck industry, which is underpinned by
potential catalysts in 2H26 (ie, GB1589 supporting e-truck adoption and National VII driving
renewals) and additional upside from exports.
Data centre exposure: Weichai has multiple product offerings to power data centres:
1) diesel engines for backup power; 2) gas engines and SOFC with potential opportunity in the
prime power market. Generac (GNRC US, , not rated) – Weichai’s client in the US –
had achieved USD400m backup gensets backlog by end 2025 (from co-locators and
developers), to be delivered in 2026. Generac is also undergoing validation with two
hyperscalers. Given Baudouin (Weichai’s wholly-owned subsidiary) is the sole diesel engine
supplier for Generac’s 2-3MW backup gensets, we believe strong Generac orders points to
further upside for Weichai. We estimate sales exposure to data centres will account for 1-4% of
total sales in 2025-27e, respectively.
-
-
-
c2
c1
Vertiv Schneider Eaton ABB nVent
33
Equities ● Industrials
25 March 2026
In this report, we make no changes to our estimates for Weichai.
Weichai: Sales breakdown, 1H25 Weichai: Share of global diesel engine
market for data centres, 2024
Source: Company data, HSBC Source: Company data, HSBC
Weichai: Generac’s backup gensets for data centres – engines all supplied by Baudouin
Model Fuel type Engine size (L) Engine output (kW) Engine provider Emissions compliance
SDMD2250 Diesel 2,250 Baudouin EPA Certified Emergency
SDMD2500 Diesel 2,500 Baudouin EPA Certified Emergency
SDMD2750 Diesel 2,750 Baudouin EPA Certified Emergency
SDMD3000 Diesel 3,000 Baudouin EPA Certified Emergency
SDMD3250 Diesel 3,250 Baudouin EPA Certified Emergency
MG1000 Gaseous 1,000 Generac EPA Certified Emergency & Non-Emergency
Source: Company data, HSBC
23%
30%
9%
38%
Engines
Trucks and parts
Agricultural machines
Smart logistics
30%
30%
20%
6%
7%
7%
CAT
Cummins
MTU
Mitsubishi
Weichai
Yuchai
Equities ● Industrials
25 March 2026
34
Valuation and risks
Valuation Risks
ABB
ABBN SW
Current price:
Target price:
Up/downside:
%
Methodology: We value ABB using a 50:50 weighted average of DCF-based
methodology and PE-based multiple valuation.
Assumptions:
For our DCF approach: we value ABB by applying a medium-term growth
expectation of c6% average and terminal growth expectation of 2%. We
calculate an unchanged WACC of %, which is based on a cost of equity of
% (unchanged). Our cost of equity assumption reflects a risk-free rate of
%, a eurozone risk premium of % and a beta of (close to the
Bloomberg adjusted beta for the stock; unchanged). For our WACC calculation,
we use an after-tax net cost of debt of %, and a targeted debt-to-equity ratio
of 20/80 (unchanged). We also incorporate valuation of Robotics as
per the deal terms. Based on our revised estimates and calculated WACC, the
rollover of our model (introduction of 2028 estimates), net debt and other
adjustments (at the end of Q4 2024) and separate Robotics valuation, we
derive a DCF-based fair value of (from ) per share; our
USD/CHF FX rate is , down from .
For our PE multiple approach: We h v ’ v g -month-
forward PE multiple of ABB of (from ) and then multiply it by our
estimated 12-month forward (2026e) EPS of (from previously)
to derive a fair value of (from previously). Using an exchange
rate of USD/CHF of , this gives a value of (from ).
We apply a 50/50 weight to these two approaches to calculate our target price
of (from previously). Our target price implies downside of
c4% and we therefore maintain our Hold rating on the stock. We believe the
good margin guidance for 2026 is positive for the company, its portfolio is well
supported for the energy transition wave, and there is a strong order backlog.
Upside risks: Market environment turning
positive and divestment plans proving more
profitable; the company manages to improve its
profit margin quickly; and USD weakness leads
to more translational gains.
Downside risks: USD strength eroding profits;
loss of focus over digital business; less
meaningful recovery in long-cycle business than
currently anticipated, leading to slower progress
in the process business; medium-term weakness
in early-cycle business impacting factory
automation; and longer-than-expected timeline to
complete disposals.
Hold
Sean McLoughlin* | @ | +44 20 7991 3464
Caterpillar
CAT US
Current price:
Target price:
Up/downside:
+%
Methodology: DCF valuation
Assumptions: Our DCF assumptions include a risk-free rate of % and
q %, H ’ q g W
Bloomberg-sourced beta of (unchanged), covering the past 10 years.
Other assumptions include a cost of debt of %, target gearing ratio of 45%,
tax rate of 23%, and terminal growth rate of 2% (all unchanged). Our WACC
remains %.
Our rounded DCF-derived target price is unchanged at USD850. Our TP
implies upside of 24%, therefore we maintain our Buy rating. We think CAT has
an indispensable position in AIDC buildouts.
Downside risks: (1) Worse-than-expected
economic slowdown; (2) slower AIDC buildout;
(3) global competition is more intense than
expected; and (4) worse-than-expected tariff
impact on costs.
Buy
Helen Fang* | @ | +852 2996 6942
Corning
GLW US
Current price:
Target price:
Up/downside:
+%
Methodology: PE multiple based.
Assumptions: We lift our PE target multiple to (from ) to reflect the
scale and durability of the AI data centre buildout now underway. The
hyperscaler capex cycle is larger and faster than the market had expected, and
h g’ O g Corning trades at a
next 12-month PE multiple versus a PE multiple for the sector. Our
target price of USD146 (from USD135) is 47x our next 12-month non-GAAP
EPS estimate of (unchanged). Our TP implies % upside; we
g, g v h v g’
exposure to the AI revolution.
Downside risks: A weaker-than-expected
macroeconomic or stock market environment,
unfavourable FX moves, less-than-expected
success in new segments, and higher-than-
expected competitive intensity.
Buy
Stephen Bersey | @ | +1 212 525 4153
35
Equities ● Industrials
25 March 2026
Valuation Risks
Eaton
ETN US
Current price:
Target price:
Up/downside:
+%
Methodology: PE multiple based.
Assumptions: We now use a slightly higher target 12-month forward PE
multiple of (from ), a 20% premium (unchanged) to the updated
S&P500 Industrials 12-month forward consensus earnings multiple. We believe
the stock should continue to trade in line with its average 3-year premium to the
& I ’ -month forward consensus earnings multiple (3-year
average of S&P500 industrial is compared to ETN 3-year average of
, which gives a c21% premium). We apply our updated multiple to our
2026e EPS of , which gives a new target price of USD420.
Our revised target price of USD420 (up from USD405) implies c18% upside;
we maintain a Buy rating on the stock as we see favourable medium-term end-
market dynamics.
Downside risks: (1) deterioration in end
markets, particularly related to aerospace and
electricals; (2) weaker than expected industrial
recovery in the US, limiting organic growth
upside; (3) higher than expected M&A integration
costs; (4) slowdown of data centre equipment
spending, and (5) an increase in pricing
pressure, particularly in the electrical business, if
end market conditions deteriorate.
Buy
Sean McLoughlin* | @ | +44 20 7991 3464
Envicool
002837 CH
Current price:
Target price:
Up/downside:
+%
Methodology: DCF valuation
Assumptions: Our DCF assumptions include a WACC of %, which is
based on risk-free rate of %, equity risk premium of % and beta of
. We use an after-tax cost of debt of %, 2026e debt-to-capital ratio of
%, and operating cash flow CAGR (before changes in working capital) of
% in 2024-38e. We forecast capex of RMB301m in 2025e and RMB312m
in 2026e. We forecast 2027-33e capex to gradually increase from RMB322m in
2027e to RMB714m in 2034e and RMB868m in 2038e, with a terminal growth
rate of 2% after 2038e (all unchanged).
Our DCF-derived target price is unchanged at . Our TP implies
upside of 1% and we therefore maintain our Hold rating.
Upside risks: (1) Stronger-than-expected data
centre liquid cooling growth trend globally; (2)
Weaker-than-expected raw material cost
inflation; (3) Weaker-than-expected competition
in the energy storage temperature control
market; (4) Stronger-than-expected data centre
upgrade investment growth in China; (5) Faster-
than-expected monetisation of AI applications
that drives industry growth
Downside risks: (1) Weaker-than-expected
data centre liquid cooling growth trend globally;
(2) Stronger-than-expected raw material cost
inflation; (3) Stronger-than-expected competition
in the energy storage temperature control
market; (4) Weaker-than-expected data centre
upgrade investment growth in China;
(5) Uncertainty in conducting overseas business.
Hold
Dun Wang*, CFA,CPA ( Reg. No. S1700519060002) | @ | +86 21 5066 2027
GE Vernova
GEV US
Current price:
Target price:
Up/downside:
%
Methodology: Discounted cash flow
Assumptions: We assume a cost of capital of %, based on a risk-free rate of
% z q %, h H g ’
latest assumptions (both unchanged), and a beta of (from Bloomberg). We
arrive at a cost of equity of % (unchanged). We use a gross cost of debt of
% and a net cost of debt of % and assume long-term debt-to-equity ratio of
1:3 (unchanged). We use unchanged terminal growth rate assumption of 4% on
the back of a long-dated gas upcycle, which already affords visibility well into the
2030s. Based on our estimates, growth assumptions and WACC, we derive an
enterprise value (unchanged).
To derive our implied market value of equity, we adjust for reported Q4 2025
h, , h q v GE ’ h X
Electric (601179 CH, CMP , not rated). This results in an implied
equity value of (from ). We assume an adjusted
share count of c262bn (factoring in the buyback impact). Based on the adjusted
share count, we derive an equity value per share of (from
), which we round down to (unchanged) as our TP. This
implies c13% downside. We maintain a Hold rating. Despite the challenging
valuation, v GE ’ h gh v g g h
positioning as the leading diversified US supplier of heavy duty power
equipment are assets.
Upside risks: Higher-than-guided medium-term
margins in the Power and Electrification
segment; successful delivery of remaining
offshore wind backlog; and higher-than expected
capital returns to shareholders.
Downside risks: Negative inflection in demand
for gas power and / or high voltage grid
equipment; performance or quality issues related
to new product installations; failure to control
cost reduction leading to lower-than-expected
savings; volatility in raw material prices
negatively impacting project margins; and project
execution risk
Hold
Sean McLoughlin* | @ | +44 20 7991 3464
Equities ● Industrials
25 March 2026
36
Valuation Risks
Johnson
Controls
JCI US
Current price:
Target price:
Up/downside:
%
Methodology: Multiple-based approach
Assumptions: We apply a target 27x PE multiple, in line with the key peer, to
our FY26e EPS of . This yields an unchanged target price of USD127.
Our TP implies c2% downside % h ’ -year
historical average PE of 23x. All assumptions are unchanged.
We maintain our Hold rating. We see an attractive long-term growth outlook,
although we believe much of the operational improvement is already priced.
Upside risks: (1) Stronger-than-expected
recovery in US non-residential market could
impact earnings positively; 2) better-than-
expected traction from OpenBlue adoption could
impact revenue growth and margin expansion
positively; and 3) better-than-expected cost
reduction and productivity benefits would impact
earnings positively
Downside risks: 1) Lower-than-expected
growth in the US non-residential market could
affect earnings negatively; 2) slower traction
from OpenBlue could affect revenue growth and
margin expansion negatively; and 3) lower-than-
expected cost reduction and productivity benefits
would affect earnings negatively
Hold
Wesley Brooks | @ | +1 212 525 0337
Nexans
NEX FP
Current price:
Target price:
Up/downside:
+%
Methodology: We value Nexans using a 50:50 weighted average of DCF-RoIC
and target PE multiple-based valuation.
DCF-RoIC approach: We roll forward our valuation by one year and set 2026
as our base year. We value Nexans by applying a return on incremental capital
of 15% and medium-term growth in capital employed of % (both
unchanged). We assume a risk-free rate of %, eurozone equity risk
premium of 4%, beta of , and cost of debt % (all unchanged). As a result
of our valuation rollover, we derive an enterprise value of (vs
earlier). We adjust net debt and minorities for 2025 reported actuals
vs 9M 2025 actuals used earlier. After these adjustments, we derive an equity
value of (vs earlier). We then arrive at a DCF-RoIC-
based fair value per share of (unchanged).
PE multiple approach: W ’ v -year average 12-month
forward PE of ( earlier) and multiply this by our 2026e EPS estimate
of (vs 12 month forward EPS of previously) to get a fair
value per share of ( previously).
We then apply a 50% weight to each method to arrive at a fair value of EUR138
( previously), which we round up to to arrive at our target
price (unchanged). Our target price implies c24% upside and we therefore
maintain our Buy rating. We see h ’ h h
on electrification, which we believe can continue to drive share price growth. We
also continue to believe in the management team and its commitment to
operational excellence and improved focus on cash management.
Downside risks: (1) Technical issues in project
execution for subsea contracts negatively
affecting profitability; (2) inability to meet
financial targets for 2028; (3) significant pullback
in offshore wind investments; (4) further
strengthening of EUR; (5) acquisition of lower
margin businesses, resulting in potential dilution
of adjusted EBITDA margin; and (6) potential
further delays to the financial close of the Great
Sea Interconnector (GSI) project.
Buy
Sean McLoughlin* | @| +44 20 7991 3464
Prysmian
PRY IM
Current price:
Target price:
Up/downside:
+%
Methodology: We value Prysmian using a DCF-RoIC methodology.
For our DCF-RoIC approach: We roll forward our valuation by one year and
set 2026 as our base year. We value Prysmian by applying a RoIC of 17% and
a medium-term growth rate in capital employed of 11% (both unchanged). We
use our risk-free rate of % and eurozone equity risk premium of 4% and a
beta of (unchanged). We use a cost of equity of % and a net cost of
debt of %, which results in a WACC of % (unchanged). As a result of our
valuation roll-over, we derive an enterprise value of (v
