Wärtsilä Q4'25: Risk related to data center demand has increased

Translation: Original published in Finnish on 2/5/2026 at 9:22 am EET.

Wärtsilä's Q4 report corroborated the narrative of improved profitability, though Energy's order intake fell short of lofty expectations. The coming years will be marked by strong earnings growth for the company, as its order book provides visibility for deliveries and it has announced plans to increase production capacity in Vaasa with a relatively capital-light investment. While large orders related to data centers will play a significant role in earnings growth in the coming years, we question the sustainability of this demand driver. The valuation is tight and requires sustained strong data center demand beyond a few years. We lower our recommendation to Sell (was Reduce) and reiterate a target price of EUR 30 for the share.

Mixed report for Q4

The Q4 report was mixed, with favorable development in profitability but weaker-than-expected orders in Energy. Orders in the key segments of Marine and Energy grew by a total of 6% (11% organically) but remained 11% below our and consensus forecasts. Apart from the previously announced large data center order in the US, there were not many other orders in Energy's new equipment sales order intake. Revenue grew by 8% – organically by as much as 16% – but still fell short of the consensus by 2%. Despite this, adjusted EBIT exceeded the consensus by 3%. Cash flow from operating activities continued to develop strongly, growing by as much as 32% from the previous year to 1.6 BEUR in 2025. In addition to the ordinary dividend of EUR 0.54, the company's board of directors is proposing an extraordinary dividend of EUR 0.52, which would align the total dividend distribution for 2025 with the full earnings per share (EUR 1.06). The proposed dividend clearly exceeded expectations (EUR 0.51–0.52 per share). Strong net cash (2025: 2 BEUR) would in principle be sufficient for an even higher dividend.

Energy's upward guidance offsets disappointment over orders

Wärtsilä's new guidance for the 2026 demand environment largely aligns with our previous estimates and supports the expectation of continued growth led by Energy. Energy's upward guidance is based on both long-term drivers, such as the balancing of renewable energy, and energy solutions for data centers, for which a large order was received from the US early in the year. Overall, demand for Marine is at a good level, but it is not expected to improve beyond the strong comparison period. Our forecasts predict order growth of 7% for Energy and 1% for Marine in 2026. While we anticipate that the demand impact of data centers will diminish in the medium term, the robust order book at the end of 2025 (Marine + Energy: +18% y/y) bolsters the outlook for revenue and earnings growth in the coming years. The company also announced plans to increase its technical capacity for engine manufacturing in Vaasa by 35%. The 140-MEUR investment is scheduled for completion in early 2028.

Valuation will remain tight in the coming years, and earnings growth may not sustain after 2028

Although visibility for earnings growth in the coming years is strong, given the order book (EBIT growth 2026-28: ~10%/year), Wärtsilä's earnings-based valuation appears stretched in our view (EV/EBIT 2026e: 19x). Even the seemingly reasonable multiples for 2027–28 (16x and 15x) may ultimately prove to be expensive if earnings growth were to stall for a few years after 2028. A potential disappearance of data-center-driven demand would significantly hinder continued earnings growth by the end of the decade, despite favorable overall trends, such as increasing demand for low-carbon solutions and growth in service sales. Current estimates factor in a significant improvement in the profitability of new equipment sales, supported by growing volumes and a favorable market, but this may not prove sustainable in the long term.