Gears of Growth
In this edition of the Smart Investor newsletter, we spotlight an industrial systems enabler embedded across automation, electrification, and the AI buildout. We are postponing our Portfolio “Sell” decision until after the Federal Reserve meeting scheduled for today, which will take one element of uncertainty off our table. But first, let’s review the latest Smart Portfolio developments.
1
1
Portfolio News and Updates
❖❖ NVIDIA (NVDA) opened its annual GTC conference on Monday. Launched in 2009 as a developer-focused event on GPU advancements, it has evolved into one of the most important global events – arguably transcending the World Economic Forum in Davos – with ripple effects across finance, geopolitics, and even culture. Dubbed the “Woodstock of AI” or “Super Bowl of AI,” it has come to symbolize the era’s defining technology wave.
Indeed, CEO Jensen Huang’s keynotes are treated as major economic signals, with announcements on new architectures often triggering immediate stock movements across the global tech sector and adjacent industries, notably influencing broader indexes. GTC is frequently named as a catalyst for the multi-trillion-dollar AI infrastructure spend, also driving adoption in non-tech sectors.
Beyond the technology’s advance and its economic implications, NVIDIA’s chip power has led to the emergence of “geopolitics of GPUs.” Artificial intelligence – a key part of the broader tech dominance theme – is becoming increasingly central to the global economy and politics. The semiconductor supply chains have morphed into a central arena of geopolitical competition, and one of the key battle scenes in the U.S.-China Tech Cold War. NVIDIA’s AI supremacy puts it at the heart of the emerging geopolitics of intelligence, where control over frontier compute power directly translates into national security advantages, economic competitiveness, and strategic autonomy.
❖ In his opening speech at the GTC, Jensen Huang made several major announcements, with the financial one making the most headlines. NVIDIA’s CEO now sees the revenue potential of Blackwell and Vera Rubin systems surpassing $1 trillion through 2027, versus a prior $500 billion view through 2026, underscoring a much larger long-term AI infrastructure demand curve. Finance chief Colette Kress reinforced this bullish outlook, noting that current growth was already exceeding previous estimates, a powerful monetary reflection of the unprecedented acceleration in AI infrastructure investment.
❖ On the technical side, Jensen Huang’s opening speech also produced a batch of groundbreaking news, with more likely to come as the conference continues. To begin with, NVIDIA’s CEO presented a completely new mindset regarding AI data centers, suggesting they should be seen as “token-producing factories” instead of data warehouses, competing for the highest possible throughput per watt under energy constraints.
Under the constraints of these physical limits, NVIDIA introduced its most complex AI computing system to date, Vera Rubin, as a vertically integrated data center platform (multiple new chips, rack-scale systems, and a supercomputer) aimed at agentic AI and AI factories, with tight coupling of compute, networking, storage, and software. Huang noted that Vera Rubin achieved remarkable data breakthroughs within the same 1GW data center through extreme end-to-end hardware and software co-design, reaching 350x growth in token generation rate in two years. It was revealed that the first Vera Rubin rack is already operational on Microsoft (MSFT) Azure Cloud, and production ramp-up is expected in the second half of 2026.
❖ Huang also unveiled NVIDIA’s new inference-focused chip, the Groq 3 LPU (Language Processing Unit), integrated into the NVIDIA Groq 3 LPX, a rack‑scale accelerator housing up to 256 LPUs for interactive inference workloads. This builds on technology from NVIDIA’s recent licensing deal with AI-chip startup Groq, positioning it as part of the Vera Rubin platform. With the competition shifting from training – where NVIDIA GPUs dominate – to inference, these LPUs address the decode bottleneck and improve cost per token, power efficiency, and user‑visible latency for conversational and long‑context workloads.
❖ This focus on inference as the primary competitive battleground was further stressed in the NVIDIA CEO’s next announcement. Jensen Huang previewed the next-gen computing architecture, Feynman, representing a fundamental architectural transformation designed to address the primary constraint limiting AI system scalability – the memory bandwidth bottleneck. The so-called “memory wall” is the primary obstacle to reducing inference cost per token, a critical metric as inference became increasingly central to AI system economics – and Feynman is slated to address that.
Feynman represents one of the most profound architectural transformations to date. Scheduled for production in 2028 and utilizing TSMC’s advanced A16 process node, Feynman will adopt the leading-edge next-gen chip-process technology, delivering an order of magnitude-plus improvement in effective inference throughput and cost per token vs. current and scaling systems.
❖ Huang also announced the NVIDIA Vera Rubin DSX AI Factory reference design and the NVIDIA Omniverse DSX Blueprint to enable physically accurate AI factory digital twins for large-scale design, buildout, and operations. NVIDIA is actively building and providing pre-validated AI factory architecture templates – standard “AI factory in a box” designs – as part of its strategy to standardize and accelerate large-scale AI deployments. These designs can be implemented in accordance with various industry requirements, reducing design risk, speeding time-to-production, and locking deployments into NVIDIA’s roadmap, with each new architecture (e.g., upcoming Feynman) getting updated templates.
❖ Jensen Huang discussed several more thought-provoking themes. These included both futurism-infused details, such as the development of the Vera Rubin Space-1 data-center computer to be deployed in space, expanding AI computing power beyond Earth, and more immediate applications. The latter included DLSS 5 system – a new version of AI graphics tech designed to make video games more realistic while using less compute power – as well as an open-source platform for enterprise AI agents, dubbed NemoClaw. NVIDIA is also extending AI from digital agents into physical AI that can navigate the real world, including surgical and industrial robots, a robotaxi-ready platform, and more. Huang then surveyed the NVIDIA-powered accelerated computing ecosystem, highlighting the company’s broad range of CUDA-X libraries, which he described as NVIDIA’s “crown jewels,” and stressing that architectural compatibility across GPU generations extends infrastructure useful life and lowers cost per unit of compute.
❖ NVIDIA’s CEO touched upon multiple new and extended partnerships across industries, including several Smart Investor Portfolio holdings. NVIDIA extended its collaboration with IBM (IBM) to help enterprises operationalize AI at scale, and with Amazon’s (AMZN) AWS to expand Blackwell and Rubin GPU architecture integrations to support building and scaling of agentic AI systems. Huang also detailed GPU-native data processing collaborations with Alphabet’s (GOOGL) Google Cloud, Microsoft’s (MSFT) Azure, and Oracle’s (ORCL) OCI.
❖ Additionally, CrowdStrike (CRWD) and NVIDIA announced a new security collaboration – a Secure-by-Design AI Blueprint – that combines CRWD’s Falcon platform with NVIDIA OpenShell to protect autonomous AI agents. The architecture integrates security natively into the AI agent stack, enabling organizations to operationalize autonomous systems with governance, visibility, and control from development through runtime, wherever agents run.
1
❖❖ CrowdStrike (CRWD) and Perplexity AI have announced a strategic partnership to integrate the CrowdStrike Falcon platform with Perplexity’s Comet Enterprise AI browser. The collaboration builds on CrowdStrike’s recent acquisition of Seraphic, bolstering Falcon’s browser-layer protection capabilities. This opt-in integration will deliver real-time threat detection, governance, and data protection directly within AI-driven workflows in Comet Enterprise. As enterprises increasingly embed AI into daily operations, securing against data exposure risks has become essential. The 2026 CrowdStrike Global Threat Report highlights the urgency, noting that AI-enabled attacks rose by nearly 90% year-over-year.
❖ CRWD has also announced a collaboration with a neocloud Nebius, to integrate its Falcon cybersecurity platform into Nebius AI Cloud. This partnership aims to bolster security for AI environments by leveraging Nebius’ dedicated NVIDIA AI infrastructure and high-performance networking capabilities.
❖ In other news, Morgan Stanley upgraded CrowdStrike to Buy from Hold and raised its price target from $487 to $510, implying roughly 19% upside from current levels. The firm also added the stock to its Top Pick list, citing CRWD as one of the best-positioned cybersecurity companies for the years ahead – with strong potential to gain market share, particularly in endpoint security where legacy vendors still control roughly half the market. Analysts expect revenue growth to accelerate as platform adoption rises and Falcon Flex scales. While CRWD remains among the pricier cybersecurity names, Morgan Stanley argues its leadership position, AI advantages, and expanding product suite justify the premium valuation.
1
❖❖ Amazon’s (AMZN) cloud division, AWS, and Cerebras Systems have announced a new partnership to dramatically accelerate AI inference. The companies are building a hybrid system that will be deployed in AWS data centers and accessible via Amazon Bedrock – AWS’s managed service for accessing and customizing foundation models. This collaboration integrates AWS servers powered by its custom Trainium AI chips, along with Elastic Fabric Adapter networking for high-performance, low-latency connections. These are combined with Cerebras’ unique wafer-scale CS-3 system, which excels in massive memory bandwidth and rapid token generation. Together, they aim to deliver the fastest cloud-based generative AI inference available.
❖ In other news, Amazon said that starting April 10, its ad-free streaming service Prime Video plan will be rebranded as Prime Video Ultra, with the monthly subscription price raised by $2. According to Bank of America analysts, this move could generate up to $780 million in additional subscription revenue – already running at about $52 billion a year – potentially adding about 1% to AMZN’s annual revenue growth rate.
1
❖❖ Alphabet’s (GOOGL) Google is in the spotlight again following media reports that Meta Platforms has delayed its next-gen Avocado AI model and is considering temporarily licensing Google’s Gemini to power its AI products. The news is further reinforcing Google’s lead in foundational AI.
❖ At the same time, Google’s proprietary AI chips are enjoying rapidly rising demand, driven by their lower total cost of ownership for large-scale AI workloads. The company’s next-gen TPUs, developed with Broadcom (AVGO) and manufactured by Taiwan Semiconductor Manufacturing Co., aka TSMC (TSM), are expected to enter mass production soon.
1
❖❖ Broadcom (AVGO) is pushing deeper into the AI infrastructure race, unveiling a new high-speed networking chip – the Taurus BCM83640 – designed to move massive volumes of data more efficiently inside AI data centers. As an optical digital signal processor (DSP), Taurus powers pluggable transceivers by supporting 1.6-terabit data modules (with future versions expected to handle even larger loads, including 3.2-terabit modules), doubling bandwidth per optical lane for lower power and higher density.
Broadcom has also announced that its Tomahawk 6 Ethernet switch chip has entered full production and is now shipping to customers. This flagship switch silicon delivers industry-leading 102.4 Tbps throughput, enabling data centers to move much larger volumes of data across networks and connect vast clusters of computers that train and run AI systems.
Together, these chips form a key part of AVGO’s end-to-end AI networking strategy: Tomahawk 6 provides the core high-bandwidth switching fabric inside racks and clusters, while Taurus optimizes the optical interconnects that link them over fiber – paving the way for massive scale-up in AI data centers toward 200+ Tbps fabrics, which Broadcom cites as the future benchmark for handling exploding AI data movement demands.
1
❖❖ Microsoft (MSFT) is reportedly in advanced discussions to lease hundreds of megawatts of data-center capacity at an AI campus in Abilene, Texas. The site had been slated for an ~0.8 GW expansion by Oracle (ORCL) on behalf of OpenAI, but those plans stalled over financing disputes and OpenAI’s evolving requirements before being abandoned in early March, freeing the capacity for new tenants. Microsoft already holds about $155 billion in future data-center lease commitments, including nearly $50 billion added in the past quarter alone, highlighting its aggressive push into AI infrastructure.
1
❖❖ Wall Street banks led by JPMorgan (JPM) have attracted more than enough demand for the nearly $15 billion of debt to back the buyout of video game maker Electronic Arts in the largest leveraged deal to date. Investors have placed about $19 billion of orders for debt under the package, signaling a massive win for JPM, which committed a record $20 billion to bankroll EA’s buyout by a group of private investors including Silver Lake, Saudi Arabia’s Public Investment Fund, and Affinity Partners.
❖ In parallel, JPM has recently moved to reduce its exposure to the private credit market by marking down software-linked loans held as collateral and tightening or restricting lending to private credit providers. The changes represent a preemptive move driven by market valuations, rather than actual loan losses. The software universe has been under severe market pressure lately following various AI model updates that sparked a narrative of “AI disruption,” igniting a downcycle for private credit firms through massive redemptions. By marking down the collateral, JPMorgan is reducing the ability of private credit firms to borrow against their loans, and in some cases could even force firms to post more collateral. JPMorgan is proactively managing risks in a stressed private credit segment, further confirming its reputation as the best-run bank in the world.
1
1
Portfolio Stocks Under Review
❖ We are keeping Oracle (ORCL) under review despite its strong fiscal Q3 2026 results and improved outlook. The report provided the confirmation we were looking for – Oracle is already monetizing AI infrastructure demand, and its massive backlog is starting to convert into real revenue. Just as important, the company clarified that much of this expansion is being funded through customer-backed infrastructure models, significantly reducing its own capital burden.
The results reinforce that Oracle’s cloud transformation is accelerating, driven primarily by AI-related demand. OCI growth remains the key engine, supported by structurally strong demand that continues to exceed available supply. At the same time, the AI infrastructure business is already profitable, with additional upside coming from higher-margin adjacent services and database offerings.
While margins are currently pressured by the pace of data center construction, this appears to be a timing issue rather than a structural concern. Much of the capacity under development is already contracted at attractive terms, suggesting improved returns as projects come online. The latest results also ease prior concerns around debt and negative free cash flow, as the customer-funded model shifts a meaningful portion of investment away from Oracle’s balance sheet.
Overall, our conviction in Oracle as a core AI infrastructure player has strengthened, with clear evidence that monetization is already underway. However, we prefer to remain patient before making a final decision, allowing sentiment around the stock to stabilize after a prolonged period of skepticism. That caution is reinforced by the current market environment – ongoing geopolitical tensions are driving macro uncertainty, pulling sentiment in multiple directions, and making it harder to form a clean read on underlying equity trends.
1
1
Portfolio Earnings and Dividend Calendar
❖ The earnings season is nearly over, and today’s report from Jabil (JBL) will wrap it up for the Smart Portfolio holdings.
❖ The ex-dividend date for Philip Morris (PM) is March 19, while for Broadcom (AVGO) and Amphenol (APH) it is March 23.
w
1
New Buy: Regal Rexnord (RRX)
Regal Rexnord Corporation is a global provider of industrial power transmission, motion control, and automation solutions, operating at the core of how energy and movement are generated, transferred, and controlled across modern infrastructure. Its products and systems are embedded in a wide range of applications – from factory automation and material handling to HVAC systems, renewable energy, and industrial equipment – where reliability, efficiency, and precision are non-negotiable. The company’s portfolio spans mechanical components, electric motors, and advanced control technologies, enabling customers to optimize performance while reducing energy consumption and downtime. As industries move toward greater automation and electrification, Regal Rexnord sits at a critical intersection of mechanical engineering and intelligent systems – supplying the components that keep industrial processes running and increasingly, improving how they run.
1
Torque and Transform
Regal Rexnord’s roots trace back more than a century, built through the steady evolution of legacy brands in mechanical power transmission and electric motion. For decades, the business grew as a collection of industrial component specialists – supplying bearings, couplings, motors, and drives to manufacturers that depended on durability and uptime. The company that exists today, however, is the result of a far more deliberate transformation – one that accelerated meaningfully in the past five years.
That shift began in earnest with the 2021 merger of Regal Beloit and Rexnord’s Process & Motion Control segment – a defining moment that reshaped the company’s scale and identity. The deal combined complementary portfolios across power transmission, automation, and motion control, creating a more balanced platform with broader end-market exposure and significantly expanded distribution reach. It also brought together two long-standing industrial lineages under a single operating model focused on integration and efficiency.
Since then, Regal Rexnord has moved from integration to optimization. Management has worked to streamline the combined portfolio, divesting non-core or lower-margin assets while prioritizing higher-growth, higher-return segments tied to electrification, automation, and energy efficiency. This repositioning included the 2023 acquisition of Altra Industrial Motion, which deepened the company’s capabilities in automation, precision control, and high-value engineered systems, and culminated in the 2024 divestiture of its Industrial Systems segment, effectively exiting more commoditized motors businesses. These actions have sharpened RRX’s strategic focus and improved its ability to allocate capital toward areas with stronger secular tailwinds.
Acquisitions have remained targeted but disciplined, aimed at deepening capabilities rather than simply adding scale. The company has invested in technologies that enhance system-level solutions – particularly in areas like advanced motion control, automation components, and energy-efficient power transmission. At the same time, Regal Rexnord has expanded its exposure to faster-growing verticals such as factory automation, logistics, and HVAC systems, where demand is increasingly driven by efficiency mandates and infrastructure modernization.
Technology has also become a more central pillar. Over the past several years, RRX has incorporated digital tools and automation into both its products and operations, improving performance monitoring, predictive maintenance capabilities, and manufacturing efficiency. As industrial systems become more data-driven, Regal Rexnord increasingly operates in the enabling layer of the AI value chain – providing the motion, control, and power infrastructure that supports automated facilities, intelligent logistics, and next-generation data center environments. These efforts align with broader industry shifts toward smarter, more connected industrial systems, positioning RRX not just as a component supplier, but rather as part of the control layer within modern industrial infrastructure.
What ties this evolution together is a consistent strategy: integrate, simplify, and refocus. From a legacy collection of industrial brands to a more unified, technology-enabled platform, Regal Rexnord has reshaped itself to align with long-term trends in automation, electrification, and energy efficiency – setting the foundation for its current position and future growth trajectory.
1
Embedded in the Buildout
Regal Rexnord operates as an industrial backbone of motion, power, and efficiency – a company that does not sit at the surface of technological change, but deep beneath it, enabling systems to run, scale, and sustain themselves. Its products – electric motors, drives, power transmission components, air-moving systems, and precision motion controls – are embedded inside factories, data centers, and infrastructure, where reliability and efficiency are not optional. Once installed, they are difficult to replace and rarely discretionary, giving the business a durable, high-friction footprint across critical systems.
The company is organized into three segments. Automation & Motion Control (AMC), the fastest-growing and most strategic unit, benefits from exposure to data centers, robotics, aerospace, and precision automation. Industrial Powertrain Solutions (IPS) provides mechanical and drivetrain components across energy, metals, and general industrial markets, offering steady, if more cyclical, demand. Power Efficiency Solutions (PES), focused on HVAC and air-moving systems, remains the most cyclical segment, currently weighed down by residential weakness but supported by stronger commercial demand. Together, these segments form a portfolio that is increasingly shifting away from legacy industrial exposure toward higher-growth, technology-aligned markets.
What defines RRX today is not just what it makes, but where it sits. The company has positioned itself deeper in the stack of the AI economy – supplying the power, cooling, and motion systems that enable large-scale compute infrastructure. Its E-Pod platform, a modular power-management solution integrating switchgear, transfer systems, and distribution units, reflects this shift. With $735 million in recent orders and a path toward $1 billion in data center revenue within two years, this business is moving from niche to meaningful contributor, expected to reach a low-teens share of total revenue by 2027. These systems simplify deployment, improve efficiency, and increasingly position RRX as a single-source provider in a complex buildout cycle.
Beyond data centers, the company is building parallel growth engines. Robotics has moved from concept to contribution, with over $30 million in annual humanoid-related revenue and a $200 million pipeline across industrial, medical, and emerging platforms. Aerospace electrification, supported by partnerships such as Honeywell – which centers on advanced aircraft mobility, eVTOL, flight surface actuation, and integrated electro-mechanical systems – adds a longer-cycle opportunity, while continued investment in automation and cross-sell initiatives expands share across industrial customers.
The common thread is efficiency. As energy costs rise – now reinforced by a $100 oil environment – demand for high-efficiency motors, drives, and cooling systems is accelerating. RRX’s products reduce operating costs at scale, turning energy intensity into a competitive advantage for its customers.
From here, growth depends less on new markets than on execution. Large data center programs, robotics adoption, and integration synergies must translate into consistent delivery. If they do, Regal Rexnord evolves from a diversified industrial supplier into something more durable – an embedded infrastructure enabler of automation, electrification, and AI-scale computing.
1
Powertrain Upshift
Regal Rexnord entered 2026 with a financial profile that reflects both resilience and transition – steady execution in a mixed macro environment, paired with growing exposure to higher-value, secular markets.
Q4 2025 results captured that balance. Organic revenue rose 2.9% year-over-year, while adjusted EPS increased 7.3% to $2.51, supported by disciplined pricing and cost control. Adjusted gross margin expanded 50 basis points to 37.6%, and enterprise adjusted EBITDA margin held roughly flat at 21.6% despite tariff pressures, rare earth constraints, and mix shifts toward project-based business. Beneath the surface, demand momentum was far stronger than revenue suggests – orders surged 53.8% year-over-year, driving a book-to-bill of 1.48 and lifting backlog by roughly 50%, providing unusually high forward visibility.
For the full year, revenue reached $5.94 billion, with modest organic growth of 0.8% reflecting cyclical softness in parts of the portfolio. Adjusted EPS rose nearly 6% to $9.65, while adjusted EBITDA margin held at 22% – a notable outcome given external cost headwinds. Free cash flow remained a defining strength, totaling about $893 million, enabling over $700 million in debt reduction and lowering net leverage to roughly 3.1x.
Segment performance highlights the uneven but improving backdrop. The AMC segment delivered double-digit organic growth in Q4, driven by data center and automation demand, while IPS posted low-single-digit growth with continued share gains in energy and industrial markets. PES remained the laggard, with revenue down double digits year-over-year due to a sharp ~26% decline in residential HVAC demand and channel destocking following regulatory changes.
Looking ahead, management is guiding for a measured but improving 2026. Revenue is expected to grow about 3%, with roughly 1-1.5% arriving from large data center projects and a similar contribution from pricing. Adjusted EBITDA margin is projected to expand 50 basis points to 22.5%, while adjusted EPS is guided to $10.20-11.00, implying around 10% year-over-year growth at the midpoint. Free cash flow is expected to decline to approximately $650 million, reflecting a deliberate $50-100 million working capital investment to support the data center ramp. Capex is guided to about $120 million.
The cadence through the year is expected to be back-end weighted, with Q1 representing the low point for earnings and margins near 21% before improving in the second half. Outside of data centers, volume is expected to remain broadly flat, reflecting a still-recovering industrial cycle.
Margin dynamics remain a key focus. Tariffs represent an estimated $155 million annualized headwind, but management expects to reach cost neutrality by mid-2026 and margin neutrality by the end of the year. Synergies continue to support profitability, driven primarily by the integration of the Altra acquisition, with $54 million realized in 2025 and a further $40 million expected in 2026, while data center projects are expected to deliver EBITDA margins above 20% with potential upside as scale improves.
Taken together, RRX’s financials point to a business that is stabilizing through the cycle while upgrading its earnings profile – shifting from cyclical industrial exposure toward a more durable, cash-generative model tied to automation, electrification, and AI infrastructure buildout.
1
Kinetic Potential
Regal Rexnord sits within a focused group of midsize U.S. industrial peers that reflect its evolving mix of motion, electrification, and automation exposure. The Timken Company provides the closest baseline – a traditional power transmission and bearings player that tracks the industrial cycle with comparable margins and cash flow discipline. RBC Bearings anchors the premium end of the spectrum, demonstrating how precision engineering and aerospace exposure can command structurally higher multiples. IDEX Corp. represents the quality compounder benchmark, with a more consistent growth and margin profile that highlights the upside of disciplined execution and portfolio focus. nVent Electric, a Smart Investor Portfolio holding, defines the forward-looking edge – an electrification and data center infrastructure player that is already strongly benefiting from AI-driven demand, offering a clear blueprint for how deeper integration into the AI value chain can support multiple expansion over time.
Stocks in this tight group have displayed largely positive but varying performances over the past year, with nVent surging by more than 100%, RRX and RBC raking in nearly 60% gains, Timken delivering a solid ~30% increase, and IDEX barely up for the period. The wide dispersion reflects a fundamental shift in how the market is pricing industrial companies – no longer as a single cyclical group, but as a spectrum defined by AI exposure, execution credibility, and starting valuation.
At the high end, nVent’s outsized gain is a clear case of AI infrastructure re-rating pulling it into a higher multiple regime: a direct beneficiary of hyperscale buildouts, the company is combining strong earnings growth with meaningful multiple expansion. Regal Rexnord is also a re-rating story, but from an earlier stage. Its rally reflects a combination of improving execution – particularly around Altra integration and margin stability – and a newly recognized data center opportunity, which has begun to reshape investor perception and close the gap to higher-growth peers. RBC Bearings matched that performance by sustaining its premium through aerospace strength and margin expansion, while Timken’s more moderate gain reflects steady execution without a comparable structural growth catalyst. IDEX, meanwhile, lagged as muted organic growth led to valuation compression and a lack of re-rating momentum.
Despite a significant rally over the past year, the Street’s consensus price target for RRX implies additional upside of nearly 25%, with recent analyst ratings consistently at Buy. Following the latest earnings update, the stock has seen multiple price-target increases – many by meaningful margins – as analysts updated their models, in some cases calling it a “thesis-changing” quarter.
While the thesis is indeed evolving and Regal Rexnord is increasingly positioning itself as an embedded beneficiary of secular growth cycles, its valuation metrics remain relatively modest compared to peers. RRX trades toward the lower end of the peer range on trailing and forward adjusted P/E, EV/EBITDA, EV/Sales, and Price/Cash Flow multiples. On a growth-adjusted basis, Regal Rexnord trades broadly in line with its higher-growth peer nVent, despite lower absolute valuation levels, suggesting the market is pricing in solid but not aggressive earnings growth going forward. This leaves room for further multiple expansion, particularly if data center momentum scales faster than currently embedded in expectations.
On top of the potential share-price appreciation, Regal Rexnord maintains a disciplined and shareholder-oriented capital allocation framework. While the highest priority remains debt reduction, followed by investments in growth – both internal and through M&A – the company has been a consistent dividend payer for decades and has selectively executed share repurchases.
RRX’s dividend yield is modest at below 1%, but it is highly stable and well-covered, supported by very low payout ratios based on both earnings and free cash flow. This conservative approach is intentional, as the company prioritizes balance sheet strength and deleveraging. That focus is evident in recent results. In 2025 alone, Regal Rexnord repaid more than $700 million in gross debt, reducing net leverage to approximately 3.1x exiting the year. Management targets a long-term leverage range of 2.0-2.5x, with a clear path to around 2.7x by the end of 2026. Importantly, management has indicated that capital return could become more meaningful once leverage falls below 2.5x, signaling potential for increased share repurchases alongside continued dividend stability.
Overall, Regal Rexnord remains a re-rating story in progress – with improving execution, growing exposure to secular demand, and a valuation that still leaves room for further upside.
1
Investing Takeaway
Regal Rexnord is evolving from a traditional industrial player into a more focused, higher-quality growth platform embedded in the systems that power automation, electrification, and digital infrastructure. Its strength lies not in headline technologies, but in the essential components that enable them to function at scale. As execution improves and the portfolio shifts toward higher-value markets, the business is becoming less cyclical and more structurally aligned with long-term demand. The emerging data center and automation exposure adds a new layer to the story, complementing its core industrial foundation. With a clearer strategy, stronger balance sheet discipline, and growing participation in secular growth cycles, Regal Rexnord is positioning itself as a steady compounder with room to further close the gap with higher-rated peers.
1
1
Smart Investor’s Winners Club
The Winners Club represents stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
A week of wild moves in stock markets ended positively for the Club, with its member count expanding to 21 stocks: GE, AVGO, TSM, HWM, EME, ANET, APH, VRT, IBKR, PH, MTZ, ORCL, GOOGL, KEYS, RTX, ATI, ASX, BK, CSCO, CRWD, and STRL.
The first runner-up is now JBL, with a 29.48% gain since purchase. Will it make it to the finish line, or will another stock outrun it?
1
1
|
