Sterling Infrastructure Should Regain Momentum Soon
Key Points
Sterling Infrastructure builds AI data centers, which has kept the company quite busy as hyperscalers plow more money into the industry.
E-infrastructure sales more than doubled year over year, and the backlog offers revenue visibility for multiple years.
A broader AI selloff does not change the fact that Sterling Infrastructure is gaining market share, especially with its enticing full-year guidance.
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The AI infrastructure boom is still in its early days. Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) has initiated an $84.75 billion equity capital raise "to expand AI infrastructure and compute," while Amazon (NASDAQ: AMZN) more recently issued over $25 billion in corporate bonds for AI investments.
All that money has to go somewhere, and some of it can flow into Sterling Infrastructure's (NASDAQ: STRL) coffers. The construction company has turned into a top AI data center builder, and as demand for those facilities rises, Sterling Infrastructure will continue to build on its backlog.
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The e-infrastructure opportunity
Sterling Infrastructure is a site development specialist for residential and commercial properties. It also helps with transportation infrastructure, which includes highways, roads, and bridges. Those parts of the business had moderate growth in the first quarter, but they were completely overshadowed by e-infrastructure.
That's the part of the business that's focused on AI data centers, e-commerce warehouses, and advanced manufacturing facilities. Its revenue was up by 174% year over year in the quarter, and a $5.15 billion backlog offers clear revenue visibility for multiple years. Sterling Infrastructure was recently awarded a contract to develop a large, multi-year semiconductor fabrication campus. The company has secured the initial developmental phase of that project and could end up building the entire facility.
AI infrastructure demand won't be slowing down anytime soon. Alphabet and Amazon are going deep into their pockets and raising capital to build more sites and buy key components that enable AI technology. E-infrastructure has served as a major catalyst, and if its revenue continues to accelerate, overall sales will go up with it.
Assessing the 30% drop
Although Sterling Infrastructure enjoys solid fundamentals and AI spending continues to climb, the stock is down by more than 30% from all-time highs. Furthermore, it's down by more than 20% over the past month. This isn't a Sterling Infrastructure problem, since many AI stocks have endured sharp corrections over the past month.
Even Micron (NASDAQ: MU) wasn't safe. More than quadrupling revenue year over year wasn't enough for the company to avoid a 20% downturn in less than two weeks.
The fact that many AI stocks and tech companies are in the middle of corrections indicates that Sterling Infrastructure is not suffering from company-specific issues. Its fundamentals are improving despite the sell-off, and investors will soon pick up on that opportunity.
Sterling Infrastructure's full-year revenue projections also point to meaningful expansion. It's expected to reach $3.75 billion in total revenue at the midpoint, which represents a 50.6% year-over-year growth rate from the $2.49 billion in total revenue in full-year 2025.
While some investors are cashing out, others can benefit by investing in the dip and capitalizing on long-term AI tailwinds at a discount.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Micron Technology, and Sterling Infrastructure. The Motley Fool has a disclosure policy.
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