BorgWarner downgraded at UBS as data center optimism seen priced in

Investing.com -- UBS downgraded BorgWarner to Sell from Neutral saying the stock already reflects an optimistic outlook for its new data center power generation business.

Investors appear to be pricing in a strong ramp for BorgWarner’s TurboCell product, aimed at supplying power to data centers.

UBS raised its price target to $55 from $49. “To be clear, we applaud BWA for seeking out new growth opportunities, especially in the face of organic declines in their traditional business,” analysts said.

BorgWarner’s core Foundational and eProducts business is expected to decline 1% in 2026, with its battery segment seen falling about $210 million, or 1.5%.

The potential for $300 million in TurboCell sales in 2027 could help offset those declines. With 2 gigawatts of initial capacity, UBS said there is scope for further expansion.

UBS believes the bullish case assumes TurboCell scales to about $1.5 billion in revenue by 2030. UBS expects a slower ramp, reaching roughly half that level.

Even if the more optimistic scenario plays out, UBS estimates that about 50% of the upside is already reflected in the share price. It sees roughly 10% additional upside under a best case scenario, which it does not view as attractive on a risk adjusted basis given execution risks.

UBS flagged several concerns. TurboCell is a startup, and BorgWarner has not produced turbines at scale, raising execution risk. The company has provided limited detail on pricing, specifications and the path to $300 million in 2027 sales, which UBS said suggests the project is at an early stage.

The bank also noted that part of the TurboCell system involves a battery component that is not BorgWarner revenue but adds to customer costs. While availability and shorter lead times versus traditional turbines are positives, UBS said the product is still in development and not yet commercialized.

The price target is based on 10x 2027 estimated earnings, which UBS said is at the upper end of the stock’s historical range but reflects the new business opportunity.

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