Kerrisdale Capital bets on Regal Rexnord as hidden AI play with 100% upside potential

Activist Investor Spots Hidden Value in Industrial Manufacturer

Kerrisdale Capital publicly disclosed a long position in Regal Rexnord Corp., triggering a Regal Rexnord stock surge of 8.4% in Tuesday trading as shares hit a fresh 52-week high of $238.45 2

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. The activist investor released a detailed investment thesis arguing that this under-the-radar AI stock has quietly evolved into a major beneficiary of the Physical AI revolution, yet continues to trade at a significant discount to peers 1

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. Kerrisdale Capital describes Regal Rexnord as "a power transmission / motion control powerhouse" positioned to capitalize on expanding industrial automation, humanoid robotics, and data center power infrastructure 2

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Strategic Acquisitions Reshape Business Mix

The transformation of Regal Rexnord centers on two landmark acquisitions that fundamentally shifted the company's profile. The $3.7 billion purchase of Rexnord's Process & Motion Control business in 2021 and the $5.1 billion acquisition of Altra Industrial Motion in 2023 expanded the product portfolio and increased exposure to fast-growing markets tied to AI infrastructure 2

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. These deals moved the business away from its legacy HVAC-heavy profile into high-margin motion control and data center markets 2

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. Kerrisdale argues that many investors still view Regal as a cyclical industrial company, even though its revenue mix has shifted toward higher-growth end markets including aerospace, defense, and robotics 1

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Data Center Business Drives Growth Acceleration

Regal Rexnord's data center business represents one of Kerrisdale's biggest reasons for optimism. The company has supplied switchgear products for more than five decades, with that business growing at a 30% compound annual growth rate over the past five years 1

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. Kerrisdale expects the switchgear segment to double over the next two years 1

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. An even bigger opportunity emerged with Regal's expansion into electrical power distribution modules, or ePODs, which help distribute electricity inside data centers. The company's entry into this market in early 2025 rapidly generated $735 million in orders by the end of the fourth quarter 2

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. Kerrisdale said the rapidly growing ePOD business "is about to drive a powerful financial inflection" 1

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Undervaluation Creates Upside Opportunity

Beyond AI infrastructure exposure, Kerrisdale argues that Regal Rexnord's valuation does not reflect its improving fundamentals. The stock currently trades at roughly 11.5 times estimated 2027 EBITDA, a meaningful discount to other industrial companies benefiting from themes such as AI infrastructure, robotics and aerospace 1

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. The firm also noted that gross and EBITDA margins have expanded significantly since 2018 2

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. Kerrisdale expects a combination of stronger industrial demand, continued margin expansion and ongoing debt reduction to improve investor sentiment, writing: "We see Regal shares motoring at least 100% higher, with exciting optionality on numerous growth opportunities" 1

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. The stock rally occurred against a constructive market backdrop, with the S&P 500 adding 0.8% and the Nasdaq gaining 1.5% on the session 2

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