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Investing.com -- Siemens (ETR:SIEGn) Energy's (ETR:ENR1n) shares showed a modest recovery after the company pre-released strong preliminary earnings for the first quarter of fiscal 2025.
Shares of the energy tech company was up 5.5% at 05:28 ET (10:28 GMT).
This eased investor concerns after a 20% stock price decline. This decline was caused by fears regarding the impact of DeepSeek, a low-cost and energy-efficient AI model.
The selloff reflected broader market unease about potential declines in power demand for data centers, a key growth area for Siemens Energy's gas turbine business.
However, the company's operational strength and longer-term market positioning painted a more optimistic picture.
The emergence of DeepSeek, developed by a Chinese startup, has raised questions about its potential to disrupt existing AI platforms due to its significantly lower costs and energy requirements.
As per analysts at Morgan Stanley (NYSE:MS), DeepSeek's operational cost advantages may lead hyperscalers to reassess their capital expenditure strategies, which could dampen demand for power-intensive infrastructure like gas turbines.
This concern has disproportionately impacted companies like Siemens Energy and GE Vernova, which are heavily exposed to data center demand growth.
However, Morgan Stanley's analysts argue that while DeepSeek introduces uncertainty, the broader gas turbine market is robust enough to weather these challenges.
Orders from North America, although important, only constitute 20-30% of Siemens Energy's global turbine demand.
The firm sees strong growth from regions like Saudi Arabia and China, where infrastructure development and energy transitions continue to drive orders.
Siemens Energy's pre-release posted a solid start to fiscal 2025, underscoring strong operational trends despite broader market volatility.
Analysts at Morgan Stanley flagged that the company's current valuation, trading at a 37% discount to the European Capital Goods sector, reflects market pessimism that might be overly conservative.
The analysts maintain an "overweight" rating on the stock and see the selloff as a potential buying opportunity, citing attractive free cash flow yields and visibility on long-term growth.
In 2024, Siemens Energy reported €16 billion in gas turbine orders, with revenues at €12 billion. The company projects a stable market size of 70 GW annually from 2025 to 2027, excluding incremental demand from data centers.
While data centers represent a lucrative growth segment, they are not the sole driver of Siemens Energy’s performance.
Analysts estimate that even without further order growth, the company could sustain high single-digit revenue increases for the next four years, supported by a diversified backlog and favorable pricing trends.
The global gas turbine market is driven by several factors, including China's shift from coal to gas, energy infrastructure investments in Saudi Arabia, and reshoring initiatives in North America.
Siemens Energy is well-positioned to benefit from these trends, which are expected to maintain healthy capacity utilization in the industry.
According to Morgan Stanley, recent capacity increases among major turbine manufacturers have left the market slightly undersupplied, with demand exceeding supply by approximately 70 GW compared to 65 GW.
The company's backlog, particularly in gas and grid segments, remains strong. The grid segment's margins improved by 300 basis points in 2024, driven by profitable orders from offshore wind connections in Europe, aging grid replacements, and interconnectivity projects.
This strong backlog mitigates potential headwinds from slower data center demand growth.