Babcock & Wilcox Stock Soars 41% After $2.4B AI Power Deal
Shares in Babcock & Wilcox Enterprises (BW) surged by nearly 41% this week after the company secured a major energy deal. The agreement, tied to a growing demand for data centre power solutions, has significantly boosted investor confidence. Analysts now see the firm benefiting from a broader shift in energy needs driven by AI expansion and supply constraints.
BW's stock rise follows an upgraded earnings forecast, with management lifting EBITDA expectations on the back of a single $2.4 billion project. The deal marks a turning point for a company that has faced past struggles with profitability and market uncertainty.
The jump in BW's share price came after it confirmed a $2.4 billion contract with Applied Digital (APLD), a deal that had previously been in the pipeline. This single order expanded the company's backlog from $424 million to roughly $2.8 billion—a 470% year-on-year increase. As a result, management raised its EBITDA guidance for FY'25 to between $80 million and $100 million, up from an earlier estimate of $70 million to $85 million.
The surge in demand stems from a power supply crunch, particularly a shortage of natural gas turbines, pushing data centre operators to seek alternative energy solutions. BW's legacy steam generation technology has become an attractive option, positioning the company to capitalise on rising needs from AI infrastructure. Parts and services revenues, linked to coal plant reconditioning and increased power demand, are also expected to grow by over 17% in 2025.
Despite the positive momentum, risks remain. BW has historically struggled with profitability, and financial firm B Riley (RILY) holds a 22% stake, raising questions about long-term stability. However, investors looking for lower-risk exposure have turned to BW's Series A Preferred Shares (BW.PR.A), which offer a 7.75% coupon rate and a current yield of around 9.5%. These shares are seen as a safer bet, with potential upside if BW's credit profile improves.
The company's market capitalisation now stands at $2.1 billion, with an enterprise value of roughly $2.4 billion. Based on the updated EBITDA forecast, its forward EV/EBITDA ratio sits at about 23x, reflecting heightened market expectations. Analysts have rated the preferred shares as a Strong Buy, citing their cumulative dividends and potential for capital appreciation, even as BW navigates cyclical demand and exposure to legacy coal technologies.
BW's recent gains highlight how AI-driven power demands are reshaping energy infrastructure opportunities. The $2.4 billion APLD deal has transformed its financial outlook, with a sharply higher backlog and improved earnings projections. While challenges like historical profitability issues persist, the company's preferred shares offer a more stable investment option amid the current growth phase.
