Bank of America is making the case that investors are underestimating one of Atlas Copco's core businesses. In a note published Thursday, the bank's research arm kept a buy rating on the Swedish industrial group and argued that the market is not giving enough credit to the growth potential of its Compressor Technique division.
Atlas Copco, a global leader in industrial equipment, makes everything from air compressors to vacuum pumps and power tools. Its Compressor Technique unit is the company's largest division, supplying compressed air systems used across manufacturing, construction, and energy industries. The bank believes this division is entering a more durable growth phase, but investors still seem to treat the company as if its momentum will soon fade.
What the bank is saying
In its note, BofA Global Research said it expects high-single-digit growth in compressor orders through 2027-28. That forecast is underpinned by two main drivers: US energy efficiency regulations and a growing services business.
Energy efficiency is becoming a bigger priority for industrial companies, especially in the US, where stricter standards are pushing manufacturers to replace older, less efficient equipment. Compressors are a significant source of energy use in many factories, so upgrading to newer models can cut costs and emissions. That trend is likely to support demand for Atlas Copco's products over the next several years.
The services side of the business is another key factor. Like many industrial equipment makers, Atlas Copco generates a growing share of revenue from maintenance, spare parts, and after-sales support. These services tend to be more stable and higher-margin than selling new machines, and they provide a recurring revenue stream that can smooth out the ups and downs of the economic cycle.
However, the bank also noted that not all parts of the division are equal. About 25% of the division's profit revenue is tied to semiconductors, a sector that remains highly cyclical. Semiconductor demand can swing sharply with global tech investment cycles, and that exposure may be one reason investors are cautious about the stock.
Why investors are skeptical
Atlas Copco has a reputation as a high-quality industrial company, but its shares trade at a premium valuation. That means investors expect a lot from the company, and any sign of slowing growth can hit the stock hard. The bank's argument is that the market is still pricing the compressor business as if its recent strength is temporary, when in fact the drivers behind it are more structural.
This is a common challenge for companies that have both cyclical and structural growth elements. When a business is tied to economic cycles, investors often discount its earnings potential, assuming that good times won't last. But if a company can build a durable services business and benefit from long-term trends like energy efficiency, it may deserve a higher valuation.
For everyday investors, the key takeaway is that analysts are not always in agreement about a stock's prospects. Even when a company reports strong results, the market may not fully reflect that in the share price if investors are worried about the future. That gap between perception and reality can create opportunities, but it also carries risk.
What it means for investors
Bank of America's note is a single analyst's view, not a guarantee of future performance. But it highlights an important question for anyone holding Atlas Copco shares: is the company's growth durable or just a temporary upswing?
The bank's answer is that the compressor division is becoming more resilient, thanks to services and energy efficiency. If that proves correct, the stock could be undervalued. If the semiconductor-linked part of the business drags on results, the skepticism may be justified.
Investors should also consider the broader industrial backdrop. Companies like Atlas Copco are sensitive to global manufacturing activity, and any slowdown in major economies could weigh on demand. On the other hand, trends like shifting energy policies and industrial investment could provide support.
For those looking at the wider market, the debate over Atlas Copco is part of a larger story about how to value companies with both cyclical and structural growth. The same logic applies to many industrial and tech firms. As credit markets show, investors are increasingly differentiating between companies they see as safe and those they see as risky.
Ultimately, the bank's note is a reminder that stock prices are driven by expectations, not just current performance. If a company beats those expectations, the stock can rise; if it falls short, the opposite happens. For Atlas Copco, the next few years will show whether the compressor division's growth is as durable as BofA believes.
