Babcock & Wilcox Secures Siemens Partnership for AI Data Center Project Amid Deep Financial Strain

What happened

Babcock & Wilcox announced a partnership with Siemens Energy to supply steam turbines for a 1-gigawatt power project supporting Applied Digital's AI Factory data center, highlighting its push into renewable energy segments. This deal aligns with BW's strategic focus on decarbonization markets, such as waste-to-energy, where it aims to leverage its installed base and brand for growth. However, the DeepValue master report reveals that BW's operations, while showing recent improvement with segment adjusted EBITDA of $29.8 million in 1H25, are overshadowed by severe financial stress, including a net debt/EBITDA ratio of 249x and interest coverage of 0.02x. Critical risks persist, such as material weaknesses in internal controls, negative free cash flow trends, and high interest expenses that strain liquidity despite a recent credit facility extension to November 2026. This project win, though potentially boosting future revenue, does not immediately address the underlying balance sheet vulnerabilities or the structural decline in its core thermal business from shrinking U.S. coal generation.

Implication

For investors, this partnership could enhance BW's order backlog in the Renewable segment, supporting its pivot toward decarbonization themes like data center power and waste-to-energy. However, it does not materially improve the company's dire liquidity position, with $110.8 million in cash but $72.3 million restricted and $471.3 million in total debt, limiting flexibility amid persistent negative free cash flow. Execution risk remains high due to internal control weaknesses and project timing variability, which could undermine the benefits of this deal. Investors must monitor whether such projects lead to sustained positive cash flow or deleveraging, as the DeepValue report emphasizes that a shift to hold or buy requires tangible refinancing progress and margin expansion. Overall, while strategically aligned, this news is insufficient to offset the elevated refinancing and dilution risks that justify the sell stance.

Thesis delta

This news supports BW's strategic alignment with growth areas like AI data center power, potentially increasing near-term order visibility in its Renewable segment. However, it does not impact the severe balance sheet stress, with net debt/EBITDA at 249x and internal control issues unresolved, leaving the core sell thesis unchanged. A shift in thesis would require concrete progress on deleveraging, sustained positive free cash flow, or validated remediation of material weaknesses.