Baker Hughes Data Center Deal Validates IET Growth but Fails to Address Core Valuation Risks

What happened

Baker Hughes secured a deal to supply 10 gas turbines for U.S. data centers, generating up to 250 MW through a long-term partnership with Twenty20 Energy. This aligns with the company's strategic pivot toward Industrial & Energy Technology, where data-center power demand is a key tailwind highlighted in the DeepValue report. However, the report cautions that BKR's stock trades at a premium multiple of ~21x EPS, already pricing in steady IET order growth and successful Chart integration. The deal contributes incrementally to the $1.5 billion cumulative data-center order target but does not materially reduce risks from OFSE weakness or the leveraged Chart acquisition. Thus, this news reinforces existing narratives without altering the fundamental investment case.

Implication

The order adds to BKR's backlog and validates its exposure to data-center power demand, a high-growth segment. It provides near-term revenue visibility and aligns with management's targets for IET expansion. However, the financial impact is minor relative to the $35.3 billion total RPO and does not address core issues like OFSE margin pressure or Chart integration risks. Investors should monitor if such deals accelerate to meet the $1.5 billion target, but the asymmetric risk-reward profile remains skewed to the downside. Without progress on de-leveraging and broader execution, the upside potential stays limited.

Thesis delta

The investment thesis remains unchanged: BKR's valuation discounts successful execution, and this deal does not shift the risk-reward imbalance. It confirms the data-center opportunity but underscores the need for sustained order flow to justify the premium, amidst persistent OFSE headwinds and integration challenges from the Chart acquisition.