Siemens Energy: A Tale of Two Divisions

Siemens Energy sees record €146B order backlog driven by AI data centers and gas turbines, but its stock falls as wind unit Siemens Gamesa remains unprofitable.

Despite a series of positive developments, Siemens Energy's stock has faced significant headwinds, shedding approximately 16% of its value over the past month. This decline highlights a stark and growing divergence between the company's robust operational performance and its market valuation. The central figure in this disconnect is its wind power subsidiary, Siemens Gamesa.

Record Performance in Core Operations

Setting aside the challenges in wind, the remainder of Siemens Energy's business is demonstrating remarkable strength. The company reported a 33% surge in new orders for the first quarter, reaching €17.6 billion. This surge propelled the order backlog to an unprecedented €146 billion. A key growth driver, alongside traditional power plant operations, is the soaring infrastructure demand linked to AI data centers. Revenue from hyperscalers more than doubled, exceeding €2 billion.

Furthermore, the Gas Services segment had an exceptionally strong quarter, booking orders for 102 gas turbines—the highest quarterly figure in the company's history. Production capacity for both gas turbines and grid technology is nearly fully booked until the end of the decade.

Complementing this operational momentum, Siemens Energy initiated a share buyback program on March 4th, with a total volume of up to €2 billion. The company's capital allocation strategy plans for roughly €10 billion to be returned to shareholders through buybacks and dividends by 2028. Following the early repayment of state guarantees, the annual general meeting approved a dividend of €0.70 per share in late February—the first payout in three years.

The Persistent Siemens Gamesa Challenge

The wind division's operational result showed clear improvement in the first quarter of the current fiscal year, coming in at a loss of €46 million compared to a loss of €374 million in the prior-year period. While this marks substantial progress, the unit remains unprofitable. One-time special effects from the sale of the Indian wind business further depressed the reported result to a loss of €221 million.

Management has set a target for Siemens Gamesa to reach breakeven by 2026. The broader medium-term forecast, which envisions a group margin of 14% to 16% by 2028, is predicated on a complete turnaround of this division. Activist investor Ananym is currently agitating for a spin-off, while major institutional shareholders like DWS and Union Investment continue to support the current management strategy. This consensus could come under pressure if the annual targets for Gamesa are missed.

Analyst Views and Index Inclusion Dynamics

Market analysts present a mixed picture. DZ Bank recently upgraded its rating on the stock from "Sell" to "Hold," simultaneously raising its fair value estimate significantly from €74 to €128. The upgrade was attributed to sustained momentum in gas turbines and Gamesa's gradual return to the market. Bernstein Research maintains a more optimistic "Outperform" rating with a €150 price target, though it notes geopolitical risks from the Middle East conflict as a potential burden for the industrial goods sector.

A significant structural development is the company's inclusion in the Stoxx Europe 50 index, effective March 23rd, where it replaces spirits maker Diageo. This will compel funds and ETFs that physically replicate the index to purchase the stock, creating a structural demand driver independent of short-term news flow. The inclusion means Siemens Energy is now a constituent of the DAX, Euro Stoxx 50, and Stoxx Europe 50 simultaneously.

All eyes are now on the second-quarter results, scheduled for release on May 12th. This report will be a critical test for management to provide concrete evidence that the Gamesa restructuring is on track and that the raised margin guidance for 2028 rests on a solid foundation. For the full fiscal year, the company anticipates revenue growth between 11% and 13%, with net income expected to land between €3 billion and €4 billion.