Supplychain – I/O Fund

Jabil’s Strong AI Growth Overshadowed by a Myriad of Weak Segments

Posted on May 16, 2025June 30, 2026 by io-fund

Jabil has surfaced as an oft-overlooked cloud and data center beneficiary, as the company’s strong growth in AI-related segments is mired behind multiple low-growth segments.

Simply put, Jabil’s 37% guided growth in Cloud & Data Center Infrastructure — to account for nearly 23% of fiscal 2025 revenue — would be impossible to see by looking at just top-line growth as revenue is expected to decline (3.4%) YoY in FY25.

However, it is this exact reason that Jabil likely faces growing headwinds throughout the rest of 2025, as a myriad of weak segments such as Auto and high consumer exposure via Apple present it to tariff-related demand and supply chain risks. These weak segments are more than offsetting AI growth, while thin margins mean tariff costs must be passed on to preserve the bottom line, which is already far below management’s FY23-stated target for this year.

Below, we discuss Jabil’s positioning in the AI supply chain, data center-driven growth and a penchant for M&A, consumer-exposed tariff risks, and lingering weakness in key segments.

Jabil’s Unique Positioning in the AI Supply Chain

Jabil is uniquely positioned in the AI supply chain, as it provides custom-designed, turnkey HPC/AI server platforms, rack enclosures, and optical networking components. Jabil is also increasingly vertically integrated across its AI portfolio with recent acquisitions, now offering complete GPU-agnostic servers featuring custom power and cooling solutions and in-house optical components.

Jabil offers both 1U and 2U (single, double rack unit) servers based on AMD’s latest 5th-gen EPYC processors and Intel’s 5th and 6th-gen Xeon processors. The 2U servers are optimized for low-latency, AI GPU accelerated workloads, while its 1U servers can be optimized for compute-storage or memory density. Jabil’s 2U ‘Eagle Stream’ server is Nvidia-certified for its L4 GPUs, which focus on video processing, deep learning and graphics use cases.

Jabil takes its full-system integration capabilities one step further with its Design-to-Dust lifecycle management support. This spans complete server rack development, tailored to customers’ exact needs, moving to volume manufacturing and then customer delivery, and circling back to decommissioning for end-of-life products. Thus, hyperscaler customers can come to Jabil for fully-designed, custom-manufactured servers from the ground up, minimizing supply chain diversification with Jabil’s vertical integration capabilities, further expanded with recent acquisitions.

However, the main risks with this strategy serving primarily in a ‘contract manufacturing’ model is that Jabil’s margins may remain thinner than other AI server manufacturers (at ~5% versus high single/low double-digits for Super Micro or HPE), hyperscale customers could shift spending, switch to other suppliers that can better meet needs with leading-edge GPUs, such as Blackwell or soon Rubin, or decide to internalize builds.

M&A Aiding Vertical Integration Capabilities

Jabil has taken steps over the past few years to strengthen its AI data center stack and enhance its vertical integration capabilities with two primary acquisitions, first with Intel’s silicon photonics-based pluggable optics transceivers unit in late 2023, and with liquid cooling manufacturer Mikros Technologies in late 2024.

Jabil is also said to be an interested party in acquiring ZT Systems’ US-based AI server manufacturing plants, with AMD reportedly looking to offload the assets in the second quarter to avoid competing with its customers Dell and HPE. Per Bloomberg, AMD is looking for a deal valued between $3 to $4 billion for the plants, with Taiwanese firms Wiwynn and Compal Electronics other interested parties.

Deal for Intel’s Silicon Photonics Unit

Financial terms for the silicon photonics deal with Intel were not disclosed, though Jabil acquired Intel’s silicon photonics IP, current and future product designs, R&D and technical teams. The deal brought Intel’s existing 400G optical transceiver module products, 800G products in development, and future 1.6T designs to Jabil’s data center portfolio. Neither Intel nor Jabil commented on the revenue of the unit, with Jabil’s management simply stating that it had “baked some of the revenues into our guide through 2024 into 2025.”

Interestingly, Jabil’s management said the idea of the deal arose from discussions from cloud customers who wanted to “disaggregate supply chains” and for Jabil to be more vertical in its server offerings. This raises a somewhat concerning point in that Jabil may have undertaken the deal due to pressure from customers who wanted to minimize extensive supply chain exposure, highlighting that these cloud customers likely have low switching costs and were willing (and able) to switch to new rack suppliers easily if such demands were not met.

Jabil’s management stated in late 2024 that within the first 12 months of the deal, the company had landed two new hyperscale accounts, with shipments already commencing. The hyperscale customers were not named, though Jabil has had a long-standing relationship with Amazon as one of its largest customers at 11% of revenue back in 2020, in both Cloud and Connected Devices segments, along with a pre-existing relationship with Meta in Connected Devices (now Connected Living).

As of fiscal Q2, Jabil is currently engaged in the 100G, 200G and 400G PAM4 optical transceiver module lines, while quoting 800G PAM4 modules in the first half of 2025 and moving towards 1.6T PAM4 modules by the end of the year. Jabil recently showcased its 1.6T pluggable transceiver module at the start of April, supporting dual 800G Ethernet or Infiniband connections, or single 1.6T connections while offering “among the lowest power consumption in the market.”

Jabil’s positioning in the 800G and 1.6T transceiver lines opens to door to growth over the next few years as these ultra-high speed products emerge at the forefront of the optical transceiver market. According to leading manufacturer Mitsubishi Electric, the optical transceiver market is expected to nearly triple from $4 billion in 2023 to almost $12 billion by 2029, with 800G and 1.6T solutions accounting for more than 80% of the market by then. This would correspond to ~$10 billion share, up 10x from ~$1 billion in 2023.

Source: Mitsubishi Electric

However, given that Mitsubishi commands ~50% global market share, the absolute opportunity in terms of revenue for Jabil may be quite low given that the market is quite saturated and competitive. Based on management’s current guidance for FY25, Networking and Communications revenue is expected to remain flat YoY at $2.3 billion when backing out the $0.7 billion associated with the exit of its legacy networking unit in FY24. Thus, it’s likely that related transceiver driven growth will be minimal even as Jabil begins to quote 800G and 1.6T products this year. Even if the new products generate ramp quickly to a few hundred million in revenue, that will only account for 1% of Jabil’s total revenue, which could easily be overshadowed by lingering auto or consumer weakness.

Jabil also expects the photonics deal will position them well for the upcoming push to co-packaged optics, believing their capabilities align better with networking switches, which is where CPO is first expected to be utilized after Nvidia unveiled two CPO networking switches at GTC. However, the growth story for CPO is much more long-term, arising more in 2027 and 2028, and as result CPO is unlikely to be a material driver over the next few years for Jabil.

Acquiring Low-Revenue DLC Firm Mikros Technologies

To enhance its thermal management solutions, Jabil acquired little-known liquid cooling manufacturer Mikros Technologies for $63 million, with the company’s revenue being estimated between $4 million and $7 million in 2023, non-accretive to Jabil’s $28.8 billion last year. The deal had $40 million in intangible assets, including $31 million assigned to contractual agreements and customer relationships.

Mikros specializes in custom microchannel cold plate and liquid cooling designs with ultra-low thermal resistance and high cooling capabilities of 1kW per square centimeter. These solutions are primarily direct-to-chip liquid cooling methods. The primary benefit of this is that these solutions can feature in a wide range of server racks, but are not as efficient as immersion-cooled servers, which are more tailored to >50kW racks, such as those featuring Blackwell GPUs, according to Super Micro.

Mikros has designed multiple different cold plate designs, with its AX-NV1 being designed primarily for Nvidia’s H100 GPU, and its AX-NV2 designed specifically for Blackwell series GPUs. Mikros says the NV2 fits easily in 1U rack designs, a primary rack size that Jabil offers.

The acquisition is helping Jabil begin to ramp its ability to help customers retrofit existing facilities from air cooling to liquid and soon liquid to liquid, through Mikros’ cold plate tech that easily will integrate into Jabil’s rack solutions. This acquisition further expanded Jabil’s full-system capabilities to now span server racks, cooling and optical networking tech.

Financials: AI Growth Overshadowed by Many Weak Segments

Jabil is by no means a hypergrowth stock, with revenue expected to decline this year and rebound to low-single digits in the next two. Despite the slow growth and thinner margins, the company has a strong bottom line, with EPS currently forecast to be nearly $9 this year.

AI-related revenue growth is strong at a guided +40% YoY as Jabil captures rising data center infrastructure demand. However, forward revenue growth rates through 2027 are multiple points lower than pre-pandemic growth and lagging management’s long-term growth targets, signaling risk ahead as multiple segments remain weak.

Revenue: Q2 Rebounds, FY25 Revenue Guidance Raised

In Q2, Jabil reported revenue of $6.73 billion, down (0.6%) YoY, with a growth rate rebounding from a (16.6%) decline in Q1.

For Q3, Jabil guided for a return to topline growth at 3.4% YoY at midpoint, offering a wide revenue range of $6.7 billion to $7.3 billion. To note, comps after fiscal Q1 2024 are slightly impacted by the $2.2 billion divestment of its Mobility business in FY24 — Mobility contributed $1.7 billion in revenue in FY24 before divestment, down from $4.2 billion in 2023.

On the back of AI-related strength, Jabil raised its FY25 forecast in Q2, now seeing revenue of $27.9 billion, a $600 million increase from the $27.3 billion guided in fiscal Q1. This has brought its guidance up $900 million from its initial $27 billion guide from Q4 2024. The primary driver for FY25 is Intelligent Infrastructure (discussed below in Segment Breakdown), riding AI tailwinds to a forecast of 17% YoY growth for the full year to $10.8 billion in revenue. This was increased from Q1’s forecast for 9% growth to $10 billion in revenue.

Jabil’s updated outlook would correspond to a YoY decline of (3.4%) for revenue, as it works through weakness outside of Intelligent Infrastructure. This builds on top of a (16.8%) YoY decline in FY24, as swift pullbacks in customer demand and excess inventory buildup in multiple key markets including auto, 5G and renewables dented revenue growth significantly. Jabil had initially guided for a (2%) to (5%) YoY decline including the Mobility divestiture, but ended the year at nearly (17%). This overshadowed strong momentum in AI, with Jabil noting that “AI GPU volume in the first half of 2024 [was] 200 times that of the level of 2023.”

Looking forward through FY27, Jabil’s growth is expected to return to positive territory in the mid to high-4% range, estimated to rise 4.6% YoY in FY26 to $29.3 billion and 4.9% YoY in FY27 to $30.7 billion.

Accelerating AI-driven growth is not appearing in higher revenue growth over the next few years, and more importantly, current estimates show Jabil operating through FY27 below its long-term growth targets – management previously outlined expectations to grow revenue at 5% to 7% YoY in the long-term.

Segment Breakdown

Jabil recently reorganized its reportable segments at the end of fiscal 2024, shifting from two segments, Electronics Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS), to three: Intelligent Infrastructure, Regulated Industries, and Connected Living & Digital Commerce. Regulated Industries accounted for 41% of revenue, followed by Intelligent Infrastructure at 39% and Connected Living & Digital Commerce at 20% of revenue in Q2.

Intelligent Infrastructure is arising as a core driver of revenue growth in fiscal 2025, with the segment focused on high-value data center and cloud computing needs for hyperscalers. Regulated Industries segment focuses primarily on auto and transportation, healthcare, renewable energy infrastructure and packaging end markets, while Connected Living & Digital Commerce segment focuses on retail digitization, smart home, warehouse automation and robotics.

Here's how each segment fared in Q2:

Intelligent Infrastructure revenue rose 18% YoY to $2.6 billion, accelerating from 5% YoY growth in Q1. This was driven by strong AI-related demand in cloud, data center and capital equipment. Growth was 37% YoY when backing out the ~$300M in revenue in Q2 ‘24 from the legacy networking business it exited.
Regulated Industries revenue declined (8%) YoY to $2.7 billion in Q2, decelerating slightly from (7%) YoY growth in Q1, on expected EV and renewable energy weakness.
Connected Living & Digital Commerce revenue declined (13%) YoY to $1.3 billion; excluding the Mobility divestiture, growth was 4% YoY. This was driven by strong warehouse automation and digital commerce growth, offset by weakness in consumer-oriented connected devices.

For Q3:

Intelligent Infrastructure revenue was guided to accelerate to 22% YoY to $2.8 billion, driven by “broad-based growth across our capital equipment, advanced networking, cloud, and data center infrastructure markets,” slightly offset by 5G weakness.
Regulated Industries revenue guided to rebound to a (1%) YoY decline to $3.0 billion, on continuing caution in the EV market.
Connected Living & Digital Commerce revenue guided to decline (16%) YoY to $1.2 billion, due to weaker growth in connected living, offset by some growth in digital commerce.

Q3’s guide would point to a 17 point acceleration in growth for Intelligent Infrastructure in just 2 quarters. QoQ growth is also accelerating from 4% QoQ in Q2 to 7.7% QoQ in Q3, assuming Jabil meets it guide at $2.8 billion.

Jabil laid the groundwork for this forthcoming acceleration in Q1, noting that it deepened its relationship with its largest hyperscaler customer (presumed to be Amazon but not named), seeing continued strength in custom AI-driven GPU rack integrations, and winning new programs with a new hyperscaler customer in silicon photonics. The ramp of Jabil’s 800G optical transceivers in the first part of calendar 2025 is also another likely factor behind this acceleration.

Intra-Segment View for FY25

Jabil also provides an intra-segment view into each of three reportable segments, breaking down growth by end market. This provides further clarity into the separate growth drivers for Jabil and what segments are struggling to grow.

Within Intelligent Infrastructure, Jabil is projecting 37% YoY growth in Cloud and Data Center revenue to $6.3 billion, or nearly 23% of total revenue, a significant acceleration from Q1’s outlook for 20% YoY growth to $5.5 billion in revenue (an $800 million sequential increase). This would be primarily driven by server racks and related data center products, as photonics revenue appears in Networking.

Capital Equipment growth is forecast at 38% YoY to $2.2 billion, while Networking and Communications revenue is expected to decline (23%) YoY to $2.3 billion, in part due to the exit of legacy networking which contributed $700 million in revenue last year. Stripping that out, Networking growth would be flat YoY.

For Regulated Industries, FY25 revenue growth was revised down from (2%) in Q1 to (5%) in Q2, on prolonged weakness in Auto & Transportation revenue, with growth expected to slow further to (11%) YoY. Renewables & Energy remain flat, while Healthcare growth was revised from 2% to flat as well.

Connected Living & Digital Commerce was maintained around (27%) YoY, impacted in part by the Mobility divestiture, but also more broadly by weak demand in Connected Living.

Most importantly, this segment breakdown reveals one key risk ahead for Jabil — the fact that Data Center growing at 38% YoY at nearly one-quarter of total revenue is not appearing in top-line growth suggests this strong AI momentum will remain overshadowed by weak growth and demand issues in other consumer-exposed and rate sensitive segments.

AI-Related Revenue Forecast Increased to $7.5 Billion, up 40%+ YoY

Based on its strengths within Intelligent Infrastructure and more specifically within Cloud and Data Center Infrastructure, Jabil boosted its AI-related revenue outlook for FY25 to $7.5 billion.

This represented a $1 billion increase in its AI-related revenue forecast and points to YoY growth of 40%+. Jabil said that last year’s AI-related revenue “was in the region of $5 billion,” and they had then increased it to $6 billion, then $6.5 billion and now to $7.5 billion. Management said the increase comes “as demand for servers, racks, photonics, advanced networking gear, storage, and testing equipment all continued to climb higher during the quarter.”

Barclays’ George Wang questioned Interim CEO Mike Dastoor about what was driving the raised AI guidance and $800 million increase in Cloud & DCI guidance:

Q, Wang: “Just kind of glad to see you guys raised the guidance by $800 million around the server rack. Was it likely driven by your biggest hyperscale customer? Just curious about timing for the ramp. Earlier, you guys talked about it will be more FY '26 in terms of the ramp with the sort of custom rack with your biggest customer in the DCI side. Just curious if there's any pull in into the back half of FY 25 kind of evidenced by the strong growth in the segment and the kind of guidance you raised. Just curious if you have any refreshed thoughts in terms of nuance just on the cadence for the ramp.”

A, Dastoor: “So I think the increase is driven mainly in 2 parts. I think if you look at our market share, we are growing our market share. So there's definitely some level of consolidation going on there, and we're winning more than our fair share of the market. And then the end market growth, again, we're not seeing any slowdown there in the end market. That continues to move upward.”

Dastoor’s answer beat around the bush, as he did not provide any clues or clarity as to whether this growth was driven by its largest hyperscaler. Comments around the custom rack ramp being more towards FY26 implies that Jabil’s AI-related revenue growth next fiscal year could remain strong if there is no pull in into this fiscal year.

Margins

Though Jabil has thin margins, it is seeing some slight margin expansion arise with its Intelligent Infrastructure operating at a higher margin and higher growth rate than its other segments. This can provide longer-term margin tailwinds should AI continue to drive more favorable margins in the segment over the next few years.

Gross margin in Q2 was 8.6%, down from 8.7% in Q1 and 9.3% in the year ago quarter.
GAAP operating margin was 3.6% in Q2, up from 3.8% in Q1 (not comparable to Q2 24’s 16.7% due to divestiture gains). Adjusted operating margin was 5.0%, flat QoQ and YoY. For Q3, adjusted operating margin is implied to be ~5.4% at the midpoint of management’s guidance for $348 million to $408 million in operating income.
GAAP net margin was 1.7%, up from 1.4% in Q1. Adjusted net margin was 3.2%, down slightly from 3.3% in Q1 but up slightly from 3.1% in the year ago quarter.

Breaking down adjusted operating margin by segment in Q2 shows Intelligent Infrastructure becoming the quiet margin and visible growth driver:

Intelligent Infrastructure adjusted operating margin was 5.3% in Q2, expanded half a point from 4.8% in Q1.
Regulated Industries adjusted operating margin was 4.8% in Q2, up slightly from 4.7% in Q1.
Connected Living & Digital Commerce adjusted operating margin was 4.5% in Q2, down 1.3 points from 5.8% in Q1.

EPS

Jabil reported strong 15.5% growth in adjusted EPS to $1.94, while it guided for a wide range of $2.08 to $2.48 for Q3. At midpoint of $2.28, this implies adjusted EPS growth will accelerate to 20.6% YoY. Jabil had noted at the time of its Mobility divestiture that it expects EPS seasonality similar to its old EMS business, with 40% in the first half and the remaining 60% coming in the second half.

The wide revenue and EPS range likely stems in part from uncertainties around tariffs, given that the guidance was given in March before specifics were announced. Yet it’s notable that management is forecasting sequential improvement in margins and accelerating EPS (aided by seasonality), as it suggests that they are quite confident in their ability to navigate tariffs and benefit from accelerating AI demand.

In Q2, Jabil also boosted its FY25 EPS forecast, seeing earnings of $8.95, up 5.4% YoY. This was a $0.20 increase from its original $8.75 forecast. To see EPS growth while revenue is declining, albeit at single digits, suggests Jabil is managing costs well and recognizing some slight operating leverage benefits.

Over the medium-term, EPS growth is expected to accelerate to the mid-teens in FY26 and FY27, with growth currently estimated at 15% and 14% to $10.30 and $11.75, respectively.

However, the broad slowdown in demand across multiple end markets and ensuing revenue weakness in FY24 has put Jabil behind its FY25 EPS target given at the end of FY23. At the time, management forecast EPS of at least $10.65 in FY25, but is now nearly (16%) below that target for this year, and still below it next year.

Cash and Balance Sheet

Cash flows remain solid, with Jabil reporting a sequential improvement in cash flows in Q2.

Operating cash flow was $334 million in Q2, up more than 53% YoY and 7% QoQ. Operating cash flow margin was 5.0%, expanding from 4.5% in Q1 and 3.2% in the year ago quarter.

Adjusted free cash flow was $261 million, up more than 443% YoY and 15% QoQ. Adjusted free cash flow margin was 3.9%, up from 3.2% in Q1 and 0.7% in the year ago quarter. Jabil forecast for adjusted free cash flow generation of more than $1.2 billion for FY25, implying a slight expansion in adjusted FCF margin from 3.7% in FY24 to 4.3% in FY25. While these are thin margins, it’s likely sufficient to cover upcoming debt maturities.

Core EBITDA was $488 million in Q2, down (3.4%) YoY. For the first half of 2025, core EBITDA was $987 million, down (15.9%) YoY due to Q1’s YoY decrease in operating income.

Net inventories rose 2.7% QoQ to $4.44 billion. Net inventory days increased 5 days QoQ to 61, above management’s targeted range of 55 to 60 days, which Jabil attributed to timing in the Intelligent Infrastructure segment.

Cash and equivalents totaled $1.59 billion, while debt remained steady at $2.88 billion. While Jabil is upside-down on debt, having nearly 2x debt as cash and debt-to-equity at 2.12x, available revolver capacity and evenly spaced maturities suggest that Jabil’s indebtedness should not elevate risk.

Jabil has approximately $500 million in senior debt due in 2026, 2027, 2028 and 2030, with $300 million due in 2029 and its largest tranche of $600 million due in 2031. While Jabil is currently focused on maximizing shareholder returns via share buybacks, its cash flow generation annually would be sufficient to cover its upcoming maturities. Jabil also has $4 billion in revolving credit facilities available as a backup to its Commercial Paper program, which also has $3.2 billion in available borrowing capacity.

However, a larger acquisition such as for AMD’s ZT Systems’ manufacturing plants where Jabil is a rumored bidder, would likely place more significant strain on its balance sheet given its expected price tag of $3-4 billion.

Jabil Believes it is Well Insulated from Tariffs, but Supply Chain Risks Remain

We recently discussed The Impact of Tariffs on the Stock Market as Q1 earnings kicks off, highlighting that early commentary from executive teams and analysts point to growing uncertainty on customer behavior and demand, amidst broader supply chain challenges. We explained that analysts are revising estimates under the hood with cautious notes that these issues will not disappear overnight.

For Jabil’s case, management believes it is well insulated from direct tariff impacts due to its global manufacturing footprint and majority of localized sales, though indirect, trickle-down impacts present a larger risk as numerous end markets remain weak.

Tariffs were a central part of Q2’s earnings call at the beginning of March, well in advance of April’s tariff announcements and subsequent market selloff, given uncertainties around scope, duration and impact of tariffs. Jabil’s management fielded several questions from analysts about this and the impacts they expect given their global manufacturing and sales footprint.

CEO Mike Dastoor said the majority of Jabil’s China business is “local to regional” in nature with only a small portion being US-bound, while he thinks the company’s global footprint and ability to manufacture locally to domestic customers worldwide means tariffs would be a “net positive.” However, this could potentially be an incorrect assumption as tariffs could possibly impact industry-wide growth in key markets such as automotive and smartphones.

To note, Jabil’s foreign revenue exposure is elevated at 77% in Q2, down from 82.5% a year ago, with the decrease primarily due to the Mobility divestiture. Jabil does not break down individual geographic exposure beyond that, but this high foreign revenue concentration increases geopolitical risk due to the sweeping implementation of tariffs worldwide, as well as broader macroeconomic risk should tariffs weigh on global growth and numerous foreign economies where Jabil operates in.

Jabil said that tariffs will be a “pass-through cost”, which makes sense to protect its bottom line given that its thin margin profile would be unlikely to safely absorb rising tariff-related expenses without severely impacting EPS. Yet, this does not truly insulate Jabil from tariffs, and neither does its global footprint — as we have seen with multiple other major tech firms from semis to autos, there is the growing uncertainty that tariffs “could lead to some level of demand reduction by the end customer” in the upcoming quarters. Jabil would likely feel tariff-related impacts if core customers such as Apple, Tesla and other auto and renewable customers face demand weakening through the end of 2025.

As we explained in our free newsletter, tariffs could quickly complicate the global supply chain and have trickle-down effects to consumers, as it’s impossible to onshore complex supply chains to the US overnight, or in short order, without facing major increases in costs. Tariffs are also expected to weigh on consumer demand, and for Jabil, analysts are cutting price targets and estimates. JPMorgan is now embedding “broader macro slowdown and associated demand moderation across most customer verticals into its estimates,” while Goldman cut its view on the auto market and sees softening consumer demand.

Consumer Exposure, Apple Concentration

Tariff impacts are already appearing in the consumer electronics industry, where both PC and smartphone industry growth forecasts are being revised lower, with industry tracking groups noting that growth rates in Q1 were driven by vendor stockpiling rather than healthy demand.

For the smartphone market, IDC said vendor stockpiling “effectively inflated Q1 shipment figures beyond levels anticipated based on underlying consumer demand trends alone.” IDC added that heightened US-China tensions and growing tariff uncertainties were a “strong reason for concern” for 2025 growth. TrendForce estimated that the “best case scenario will see the smartphone market flat at best” in 2025, while the “worst case scenario is a production decline by as much as 5% YoY.”

Jabil’s top customer Apple is expected to face quite significant tariff impacts, either culminating in much higher prices for consumers, with analysts forecasting 7% up to 43% price hikes, or higher costs, up to $9 to $10 billion to COGS. Apple also rushed to ship in 600 tons, or ~1.5 million iPhones worth $2 billion, in March in an effort to avoid tariffs.

While Jabil may not be affected by directly supplying Apple, if its sales occur locally in India for example, demand shocks from higher prices theoretically would impact Jabil’s revenue if Apple cuts shipments to manage inventories as a result. Jabil’s management is well aware of the fact that overall volumes are likely to be negatively impacted by tariffs in the future, expecting “some level of pullback towards the holiday season, especially from the consumer's perspective.”

In FY24, Apple’s share of Jabil’s revenue was 11%, or ~$3.2 billion, abating from the 19% to 22% revenue share from FY19 to FY22 (in part due to the Mobility divesture). During those years, Apple had driven revenue of at least $5.4 billion to Jabil. In 2023, Jabil also took steps to limit its Apple-China exposure, shifting its AirPod production to India.

EVs, Renewables Also Present Risks

Jabil has already seen persisting weakness in Automotive weigh on revenue growth, especially in FY24, and tariffs could further exacerbate demand issues in this and other markets such as renewable energy.

The solar and renewable energy industries have been plagued by high rates affecting solar rollouts throughout 2023 and 2024, and high rates combined with tariffs will likely remain a dark cloud over global demand. Enphase last week stated that while tariff impacts would be felt more on batteries as opposed to solar, it expects the US solar market to remain pressured by high interest rates while Europe remains challenging from regulatory changes and seasonal demand softness.

When it comes to automotive, the current consensus is that the industry will be hit quite hard by tariffs. A CNBC report from early April noted that analysts and executives are “expecting to see a drop in vehicle sales in the millions, higher new and used vehicle prices, and increased costs of more than $100 billion for the industry.”

When it comes to EVs, Tesla is typically seen as the bellwether for the industry given its presence and market share. Now, Tesla sits at the crossroads of consumer demand and China tensions, and is witnessing large cuts to growth expectations on top of weak demand. Q1 deliveries slumped (13%) YoY to the lowest level in two years, while revenue estimates for the full year have been slashed by $20 billion since the start of 2025.

Jabil is definitely not immune to demand headwinds in auto and solar — Auto and Transportation weakness was a core factor in FY24’s revenue decline, while Renewable Energy Infrastructure remains nearly (20%) below 2023’s revenue level, at $2.4 billion guided for FY25 versus $3.1 billion in FY23.

At the end of FY23, Jabil had projected 20% YoY growth in FY24 for Auto and Transportation revenue, forecasting a rise from $4.4 billion to $5.3 billion. Jabil then cut the segment’s guidance each quarter, with actual FY24 revenue for the segment coming in flat at $4.4 billion.

For FY25, Jabil had initially guided for $4.2 billion in revenue, down just (5%) YoY, but now has cut this guide each quarter to project just $3.9 billion in revenue for the segment, down (11%) YoY. This is before the full effect of tariffs has hit the auto industry, and a rather substantial erosion of revenue growth for Jabil, considering that at $5.3 billion, Auto & Transportation would’ve accounted for more than 15% of revenue in FY24 and nearly 19% in FY25.

Due to this weakness in Automotive as well as lingering headwinds in other segments including Renewable Energy and Healthcare, Jabil faces a murky outlook and weak top-line growth until these segments begin to meaningfully recover, which at the moment seems to be much more prolonged as tariffs weigh.

Valuation

Jabil has not been left out of tech’s rout in 2025, with shares at one point falling more than 30% from January’s highs at nearly $175. This has brought valuation multiples down to more reasonable levels, though tariffs could still result in a negative impact to the bottom line over the coming quarters due to thin margins.

Currently, Jabil is trading at 16.2x forward PE, a fair bit below its 18-19.5x peak multiples in January 2025 and early 2024, though well above its April low at 13x. This has brought it back above its 5-year average forward PE multiple of 12.8x, presenting more room to the downside should earnings estimates get revised lower through the rest of the year should tariffs impact customer demand and revenue growth.

Source: YCharts

On a top-line basis, Jabil is trading at 0.56x FY25’s estimated revenue of $27.9 billion at its current $13.3 billion valuation. This is above its 5-year historical forward PS average of 0.45x, as Jabil is likely seeing a slight re-rating higher due to optimism around its strong data center and AI related revenue growth forecasts.

Source: YCharts

If you strip it down to look at just the AI-related revenue, Jabil is trading at just above 2x its $7.5 billion AI revenue forecast, which is growing 40%+ YoY. It’s also trading at 2.5x its Cloud and Data Center Infrastructure segment with 37% YoY growth, approaching AI hardware pure-plays such as Super Micro which have been valued at 3-4x revenue at peak.

Conclusion

Jabil is intriguing as its strong growth in Cloud and Data Center Infrastructure is shrouded by a myriad of weaker segments, and it has substantially raised the segment’s forecast by $800M QoQ in Q2. This would represent a substantial acceleration from its prior 20% growth guide to 37% growth.

Despite this strong growth, Jabil’s top-line growth is rather subpar, with revenue forecast to decline YoY in FY25 as Jabil continues to digest end market weakness in a handful of consumer-exposed segments. This exposure to Apple, automotive clients and other industries such as healthcare has the potential to weigh on revenue and earnings growth through the rest of 2025, and risks completely overshadowing AI growth.

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Damien Robbins, Equity Analyst for the I/O Fund, contributed to this analysis.

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Tesla Has a Demand Problem; The Stock is Dropping

Posted on March 7, 2025June 30, 2026 by io-fund

After posting its first annual decline in deliveries in 2024, Tesla continues to face major hurdles to growth in 2025. There are shockingly large declines in Europe and China so far this year, coupled with automotive margins that hit a low in Q4 with more margin pressure likely in Q1. Management has also quietly shifted its tone on 20% to 30% delivery growth, with other segments offering no reprieve as Tesla continues to eat into its gross profit to push deliveries higher.

While optimism has risen for robotaxi services and Optimus robots, neither of the two look to be major drivers of growth in 2025, with initial use cases likely to be internal or small-scale in nature. Tesla continues to hype up a more affordable model, though questions remain about its ability to do so profitably as Tesla has made more progress cutting selling prices than it has cutting production costs.

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Tesla’s Automotive Growth Stagnates in 2024

Automotive growth stalled in 2024, with Tesla recording a (1%) YoY decline in deliveries for the year to 1.79 million vehicles. Q4 capped off the end to a rather tumultuous year for Tesla, as Tesla sold down a significant amount of inventory after Q1 2024 saw its first YoY decline in quarterly deliveries in four years.

Tesla stock sees its first annual decline in deliveries as growth stagnated in 2024.

China was a strong area of growth for Tesla in 2024 and in Q4, with Tesla’s deliveries in China reaching a record high of 82,927 vehicles in December and 196,902 vehicles in Q4, up nearly 16% YoY and also marking a fresh record. For 2024, China deliveries exceeded 657,000, rising 8.8% YoY. As a result, China accounted for 39.7% of global deliveries in Q4 and 36.7% in 2024, up more than 3 points from 33.4% in 2023.

For 2025, Musk had estimated vehicle deliveries could grow 20% to 30% YoY in Q3, which would correlate to deliveries between approximately 2.15 million and 2.33 million, or an average of at least 550,000 deliveries per quarter. Interestingly, this target was not repeated in Q4, with Tesla saying now that it only expects to “return to growth” in 2025. This subtle shift in tone is easy to miss, but it suggests that Tesla may be on track for 1.85 to 2.0 million vehicles this year, technically returning to growth but at a much lower rate than prior commentary.

This year looks to be off to a challenging start, with early data from across Europe showing plunging sales, while China sales accelerated their decline in February to notch a (29%) YoY drop for the first two months of the year.

ACEA data showed that Tesla registrations fell 45% YoY in January 2025 in the EU, Iceland, Liechtenstein, Norway, Switzerland and the UK, reaching a two-year low, despite broader EV sales rising 37%. In February 2025, registration data showed declines of (42%) to (48%) YoY in Scandinavia and France, while Germany saw sales decline a whopping (76%) YoY after falling (60%) in January.

Tesla stock is facing a tough road ahead in China as sales have slumped to start 2025, with February plunging -49% YoY.

China sales dropped (12%) YoY in January, but accelerated this decline in February, with preliminary data from the CPCA showing sales down (49%) YoY to 30,688 vehicles, the lowest monthly volumes in the country since August 2022. This also marks a (51%) MoM plunge from January’s 63,238 vehicles, and a more than (67%) plunge from December 2024. For comparison, rival BYD’s February sales surged 161% YoY for BEV and PHEVs, with global sales up 56% YoY in the first two months. CPCA data also showed the NEV market rose 82% YoY in February, with Tesla lagging the market by a 131 point difference. Tesla is now offering an 8,000 yuan (~$1,100) insurance subsidy on Model 3 vehicles in China in an effort to revive demand.

Given this weakness already in Q1 in core regions, there are whispers that deliveries could fall to significantly below 400,000. There are mounting indications that Tesla is facing a demand problem, not only within plunging sales across multiple markets worldwide, but also in more aggressive financing perks. Tesla recently launched new financing and free lifetime supercharging perks this week to boost demand, offering 0% APR or zero due at signing for Model 3s and discounts on older Model Ys.

If Q1 does come in weak due to global sales weakness and transitionary impacts to production from the refreshed Model Y, Tesla will have to make up substantial ground in the back half of the year to reach its optimistic targets, as Musk’s prior 20% to 30% volume growth target would already be pushing the upper limits of Tesla’s installed manufacturing capacity.

Tesla’s Margins Have Faced Significant Pressure

Tesla has prioritized affordability to drive growth in delivery volumes and prevent inventory build-ups through 2024, with this coming at the expense of margins. In Q4, CFO Vaibhav Taneja reaffirmed these priorities, saying Tesla is still committed to reducing inventory and vehicle production costs – as expected, this came at quite a cost to margins. Management has also discussed for multiple quarters the plan to launch more affordable models in the first half of 2025, but there’s limited evidence that Tesla can do so in a margin-accretive way that quickly.

Taneja explained in Q4’s earnings call that Tesla was “able to get our overall cost per car down below $35,000, primarily by material costs,” despite increased depreciation as Tesla transitions to its refreshed Model Y. Calculations show that COGS per vehicle declined just (1.1%) sequentially in Q4 to ~$34,716, or a reduction of $390 from Q3.

Tesla’s actions to aggressively sell down inventories, which declined nearly $2.5 billion sequentially in Q4 to $12 billion, were possibly due to “attractive financing options but also other discounts and programs which impacted ASPs.” As a result, ASPs fell (5.2%) sequentially to $39,818 in Q4, a decline of approximately ($2,174) from Q3. This was the largest QoQ decline in ASPs since Q1 2023. Essentially, Tesla reduced production costs at less than 1/5th the rate of ASPs in the quarter.

Tesla’s average selling prices declined more than 5% QoQ in Q4 2024, while production costs declined just 1.1% QoQ.

Over the last three years, ASPs have been declining at a faster rate than COGS, pressuring margins quite substantially in the process. Tesla said that it saw a new record for deliveries in the highly competitive Chinese market, which (as we have discussed in our analyses Tesla Sells 33% Of Vehicles Below Average Cost, BYD Pulls Ahead in November 2023 and Tesla’s China Market Share Continues To Slide in December 2023) are detrimental to ASPs and likely a factor in the larger QoQ decline.

Putting this all together, automotive gross margin dropped more than 3.5 points sequentially to 13.59% in Q4, more than a full point below Q2’s 14.65% margin. This was visible within Tesla’s growth rates – automotive revenues declined (8%) YoY and (1%) QoQ despite a 2% YoY and 7% QoQ increase in deliveries. This was also mostly expected given management had stated that sustaining margins in Q4 would be challenging.

Tesla stock witnessed automotive gross margin (excl. regulatory credits) fall to a fresh low at 13.59% in Q4 2024.

On a per-vehicle basis, Tesla’s average gross profit was ~$5,102 in Q4, down more than (29%) YoY and (26%) QoQ due to the sharper decline in ASP. This is a far cry from the $14,000+ gross profit per vehicle Tesla was recording in late 2021 and early 2022.

As it stands, Tesla risks its per-vehicle gross profit falling below $5,000 in 2025 unless it can quickly drive production costs below $34,000 per vehicle or reverse its decline in ASPs. The aforementioned 0% APR financing perks and other promotional discounts are likely to weigh on ASPs, as was the case in Q4.

Margin Issues to Persist in Q1

Tesla has outlined more headwinds in the first half of 2025, and energy storage has been unable to offset automotive weakness recently, facing similar growth headwinds in Q4 – revenue and gross profit increased just 1.5% and 0.7% from Q2 despite deployments being more than 17% higher.

For Q1, there’s not likely to be much relief on the margin front, as management said that production of the refreshed Model Y kicking off in February will “result in several weeks of lost production” in Q1, and that “margins will be impacted due to idle capacity and other ramp related costs” that will ease once production is ramped. Energy storage is also likely to see margin pressure in Q1, with Shanghai production set to ramp with both Powerwall and Megapack remaining supply constrained.

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Questions also remain about Tesla’s ability to launch and ramp a more affordable model as promised this year. Tesla has stated for multiple quarters now that it remains on track to launch this vehicle in the first half of 2025, with it being a cornerstone to the previous 20-30% delivery growth forecast given management’s intense focus on improving affordability for customers to drive delivery growth in 2024. Tesla can tout Q4’s production costs as the lowest on record, but the bigger picture shows that Tesla has made very little progress in actually reducing production costs over the past three years. In fact, production costs have declined just (5%), or ~$1,830, since the end of 2021, or a little more than a $150 reduction per quarter on average.

If Tesla’s goal is to make an affordable model at a $25,000 price point and make it profitable at scale, production costs would need to be more than 30% lower than current levels. A 30% reduction in production costs from Q4’s level would equal ~$24,300, or a gross margin of under 3%. To produce a $25,000 vehicle at a ~15% margin, production costs would need to come down to ~$21,750, or nearly 40% below its average cost. Simply reshuffling logistics scheduling to reduce quarter-end weighting of deliveries or relying on materials costs coming down in the face of tariffs is not enough.

And if this is truly something that is feasible to do within the year, it begs the question, why hasn’t Tesla done this yet? There is little evidence that Tesla can flip a switch and bring to market a sub-$30,000 or $25,000 vehicle in the first half of the year without significant damage to margins.

The Bigger Picture at Play for Tesla Stock is Eroding Earnings

While I have heard numerous times that discussions on margins are short-sighted and that the bigger picture for Tesla is the long-awaited autonomous driving and robotics growth curve, I want to make clear that margins have led to a significant erosion in Tesla’s earnings power over the past few years.

At the beginning of 2023, Tesla was expected to earn $8.50 in earnings per share in 2025. At that time, automotive gross margin had actually contracted 5 points YoY, down from 29.2% in Q4 2021 to 24.3% in Q4 2023. To put it another way, Tesla was generating more in automotive gross profit at half the scale.

In Q3 2021, Tesla generated $3.67 billion in automotive gross profit, or $3.24 billion excluding leasing and regulatory credits, with deliveries of 241,391. In Q4 2024, Tesla generated $3.29 billion in automotive gross profit, or $2.39 billion excluding leasing and regulatory credits. This gross profit and margin erosion is why adjusted EPS peaked at $4.07 in 2022 and has since dropped to $2.42 in 2024.

Now, 2025’s EPS forecast stands at just $2.85 at the beginning of March, more than (66%) lower than the estimate from two years ago. It’s also a rather sharp decline this year, down more than (12%) from $3.25 in mid-January.

Tesla stock’s EPS estimates have fallen -12% so far in 2025. Source: YCharts

This has been primarily caused by margin contraction and lower automotive gross profit, which have dragged operating margin much lower. Operating margin peaked at 16.8% in 2022, before contracting to 9.2% in 2023 and now to 7.2% in 2024, with Q4’s operating margin at 6.2%.

Robotaxis, Optimus Inconsequential to Tesla’s Growth in 2025

Robotaxis and Tesla’s Optimus humanoid robots are two core anchors for a majority of the multi-trillion-dollar valuation thesis, with Musk throwing out in Q4’s call that Optimus has “the potential to be north of $10 trillion in revenue.” However, for 2025, even if both are achieved, they’re likely to be only for internal use and not ready for commercialization in a way that will contribute to growth.

Tesla says that it is planning to launch unsupervised FSD as a paid service in Austin, Texas in June, with Tesla’s fleet testing the service out at its factory, from the end of the production line to the destination pick-up parking spot. Musk explained that Tesla is aiming to have unsupervised services with its internal fleet in multiple cities by the end of 2025. Tesla is also seeking the first permit to pave the way for an approval for robotaxi services in California.

However, given that FSD is still Supervised for consumers, analysts had questions about the progress Tesla is making on reaching full autonomy (ie. hands-off, eyes-off), with management explaining that it is close but not there yet:

“We need to be very confident that the probability of injury is low before we allow people to check with their email and text messages. … We're in this perverse situation where people will turn the car off autopilot so the computer doesn't yell at them, check the text messages while steering the car with their knee and not looking out the window. … If you have any problems with the system and when people are not looking, that is a dangerous thing. And that's what we're trying to avoid. The capability is getting there, but it's not fully there.”

Though Tesla laid forth that goal to have a robotaxi service running as soon as this summer, and discussed its ramp profile in Q3, the company provided no major update in Q4 on the Cybercab, its purpose-built robotaxi. Tesla said that it would be aiming for volume production in 2026 with a ramp to at least 2 million vehicles per year, potentially as high as 4 million in the future.

For Optimus, Musk threw out a rather sensational $10 trillion revenue figure, though he shared more details about the robot and Tesla’s production projections. Musk explained that the current production line Tesla is “designing is for roughly 1,000 units a month of Optimus robots. The next line would be for 10,000 units a month. The line after that would be for 100,000 units a month.” He added that Tesla will “probably not” succeed in manufacturing 10,000 in 2025, which is what its internal plan targets, but will aim to ramp production significantly faster than its automotive side.

Musk also predicted that it would not “take very many years before we're making 100 million of these things a year,” though initial use cases for Optimus will be inside Tesla factories, with commercial sales not expected until at least the second half of 2026. If anything, scaling production of either robotaxis or Optimus this year will likely add to costs and impact the bottom line.

Note on Tesla’s Capex

What’s interesting is that even with the $10 trillion revenue potential (and 100 million production numbers) for Optimus and 2 million for Cybercab, Tesla’s capex is not expected to meaningfully increase from 2024’s levels over the next three years. For 2025, 2026 and 2027, Tesla said that it expects capex to be at least $11 billion, compared with $11.34 billion in 2024. Musk had said in Q4 that Optimus’ AI training needs are “probably at least ultimately 10x of what's needed for the car,” suggesting significant amounts of compute would be needed.

In 2024, Tesla’s AI infrastructure assets rose $3.6 billion YoY to $5.15 billion, and it is still working on developing FSD. If you have to scale the compute factor by 10x, while ensuring plants can handle manufacturing millions of Optimus robots, millions of Cybercabs, existing models and a new affordable model, maintaining capex at or above $11 billion annually does not seem sufficient given that Tesla is just now approaching a 2 million vehicle scale annually after having spent close to $50 billion over the past decade.

Conclusion

Musk has been quite vocal about 2025 being Tesla’s “most pivotal year” and possibly the “most important” in its history. Despite strumming up optimism for Optimus and autonomous driving advancements this year, the growth story looks challenged with data for January and February showing substantial YoY declines across Europe and China.

Management’s commentary saw a subtle change from 20% to 30% growth in Q3 for deliveries to now only a return to growth mentioned in Q4, suggesting Tesla is also tempering expectations for deliveries in 2025.

2025’s EPS estimates are already dropping, falling more than 12% since the beginning of the year to $2.85, while revenue estimates have already been revised $4.3 billion lower to $112 billion. New products such as robotaxis and Optimus are unlikely to be growth drivers in 2025, with initial use cases likely limited to small scale and internal operations.

Margins came under more intense pressure in Q4, and are facing even more headwinds from idle capacity in Q1 as Tesla paused production in order to ramp up the refreshed Model Y, while Energy storage provided no relief despite a jump to record deployments in Q4. As Tesla is aggressively pushing for better affordability, it’s putting automotive gross margin at risk of falling into the single-digit range.

Price often bottoms before fundamentals, which means Tesla may be in a buy zone soon. Find out what potential entries the I/O Fund is watching for Tesla and other AI stocks in our upcoming webinar with Portfolio Manager Knox Ridley on Thursday, March 13 at 4:30pm EST. Learn more here.

I/O Fund Equity Analyst Damien Robbins contributed to this report.

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