Siemens Energy: An overpriced success story?

Born from the spin-off of the Siemens conglomerate, Siemens Energy has emerged as one of the most compelling European equity stories in recent years. Driven by the energy transition and the surge in electrical infrastructure requirements linked to AI, the group is benefiting from a powerful narrative tailwind. However, after such a meteoric rise, the question of valuation is now taking center stage.

Conglomerate spin-offs are often synonymous with shareholder value creation. By decoupling their business units, groups gain clarity and, typically, a valuation rerating. Siemens AG followed this logic between 2018 and 2020, giving birth to several independent entities, including Siemens Healthineers and Siemens Energy.

A few years after these divestments, their stockmarket performances are mixed. Over the last three years, Siemens Healthineers shares have fallen significantly (-28%). Conversely, Siemens Energy has absolutely soared, posting a spectacular +680% gain, illustrating a complete reversal in investor perception.

Right place, right time

However, the starting point was far from favorable. The group inherited low-profitability assets, particularly in the wind power sector via Siemens Gamesa Renewable Energy. This struggling division weighed heavily on the group's margins and credibility. However, the full buyout in 2022 marked a turning point, signaling a strategic turnaround and triggering the stock's rebound.

Since then, market sentiment has shifted dramatically. Siemens Energy now benefits from several growth levers: the energy transition, grid electrification, and, more recently, indirect exposure to artificial intelligence. Indeed, the development of AI is accompanied by growing needs for electrical infrastructure, making the group a "proxy" for the technological revolution.

A premium P/E ratio

However, this rerating raises a central question: how much further can the market go? The group's order book is particularly robust, recently reaching €146bn, according to Reuters. However, this visibility seems largely priced in at current levels.

Valuation indeed appears stretched, with elevated multiples. The stock is trading at 62x its projected 2025 earnings. This is significantly higher than other European energy players (Vestas, Nordex) and is more in line with iconic names like Nvidia. Nevertheless, it remains consistent with the multiples of its American peer, GE Vernova, which is caught in the same upward narrative. If the market is willing to pay a premium, it is due to the high visibility of dynamic earnings growth. In other words, investors are paying a high price for results that are still being built.

Siemens Energy is undeniably a key player in the energy transition, supported by multiple growth engines. Investing at these levels is an implicit bet on the explosion of energy demand linked to the rise of AI.