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

Forget Nvidia: Kerrisdale Says This Under-The-Radar AI Stock Could Rally 100% Or More - Regal Rexnord (NY

Kerrisdale Capital believes investors may be overlooking another AI beneficiary: Regal Rexnord Corp. (NYSE:RRX). In a new investment note, the activist investment firm argues the industrial manufacturer has quietly evolved into an AI infrastructure play through its growing exposure to data centers, robotics, industrial automation and aerospace, yet continues to trade at a significant discount to peers. That disconnect, Kerrisdale says, could send the stock more than 100% higher. Regal Rexnord: Industrial Company To AI Infrastructure Play Kerrisdale argues that Regal Rexnord today looks very different from the company investors remember just a few years ago. The transformation began with the acquisitions of Rexnord's Process & Motion Control business in 2021 and Altra Industrial Motion in 2023. Together, those deals expanded Regal's product portfolio and increased its exposure to several fast-growing markets tied to AI and industrial automation. "Today, Regal has world-leading products that position the company to capitalize on some of the best growth themes in the market: data center, industrial automation, aerospace & defense, and robotics," Kerrisdale wrote. The investment firm believes many investors still view Regal as a cyclical industrial company, even though its revenue mix has shifted toward higher-growth end markets. Regal's Data Center Business Is Accelerating One of Kerrisdale's biggest reasons for optimism is Regal's growing data center business. The company has supplied switchgear products for more than five decades, and Kerrisdale noted that business has grown at a 30% compound annual growth rate over the past five years. It expects that segment to double over the next two years. An even bigger opportunity may be Regal's expansion into electrical power distribution modules, or ePODs, which help distribute electricity inside data centers. Kerrisdale said the rapidly growing ePOD business "is about to drive a powerful financial inflection." Why Kerrisdale Sees 100% Upside Beyond AI exposure, Kerrisdale argues Regal's valuation does not reflect its improving fundamentals. The firm notes 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. It also expects a combination of stronger industrial demand, continued margin expansion and ongoing debt reduction to improve investor sentiment. "We see Regal shares motoring at least 100% higher, with exciting optionality on numerous growth opportunities," Kerrisdale wrote. If the firm's thesis proves correct, Regal Rexnord may become one of the more overlooked ways for investors to gain exposure to the next phase of the AI infrastructure buildout -- without owning another chipmaker. Image via Shutterstock Market News and Data brought to you by Benzinga APIs To add Benzinga News as your preferred source on Google, click here.

Why did Regal Rexnord stock surge today? By Investing.com

Investing.com -- Regal Rexnord stock surged 8.4% in Tuesday trade after Kerrisdale Capital publicly disclosed a long position and released a detailed investment thesis arguing the industrial manufacturer is a misunderstood beneficiary of the Physical AI revolution, with potential for the stock to more than double from current levels. The firm described the company as "a power transmission / motion control powerhouse" positioned to capitalize on the expansion of industrial automation, humanoid robotics, and data center power infrastructure. At the heart of Kerrisdale's thesis is the company's strategic transformation through two landmark acquisitions -- 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 -- which shifted the business away from its legacy HVAC-heavy profile into high-margin motion control and data center markets. The firm noted that the company's entry into the data center power equipment modules market in early 2025 rapidly generated $735 million in orders by the end of the fourth quarter, while its switchgear business has compounded at a 30% annual rate over the past five years and is expected to double within two years. Kerrisdale also highlighted that gross and EBITDA margins have expanded significantly since 2018, and that the stock trades at a meaningful discount to industrial peers at roughly 11.5 times 2027 estimated EBITDA. The broader market provided a constructive backdrop, with the S&P 500 adding 0.8% and the Nasdaq gaining 1.5% on the session, supported by a technology recovery rally and optimism around geopolitical developments. Today also marks the final session of what is shaping up to be the best quarter for the S&P 500 and Nasdaq in six years, with investor sentiment broadly tilted toward risk assets. RRX also hit a fresh 52-week high of $238.45 during the session, and today is the stock's ex-dividend date for its $0.35 quarterly cash dividend. The combination of a high-conviction activist disclosure, a compelling AI infrastructure narrative, and a supportive macro environment converged to deliver one of RRX's strongest single-session moves in recent memory, pushing the stock from a prior close of $219.88 to as high as $238.45 intraday -- a level that now marks its 52-week peak. This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.