Guidance Comes Back, and It Points at a Record Fourth Quarter

Results vs. Consensus

Three months ago SLB missed its own guidance, declined to guide the following quarter, and printed negative free cash flow. This quarter it beat the consensus, beat the scenario it offered in place of guidance, generated $716M of free cash flow, and reinstated a forward framework that extends two quarters out with a downside case attached. That is a genuine reversal and the shares responded accordingly.

Actual vs. the April Scenario

"While the revenue shortfall was close to our expectations, we took some temporary cost actions to alleviate the detrimental effect on our earnings. As a result, the sequential impact on our earnings per share was slightly below the low end of the $0.06 to $0.08 range that we originally indicated for the second quarter." — Stephane Biguet, Chief Financial Officer

Year-over-Year Comparison

The year-on-year column remains uniformly negative and it should not be glossed over. Adjusted EPS is down 26% and adjusted EBITDA margin is 284bps lower. What changed this quarter is the direction of travel, not the level.

Quality of Beat/Miss

• Revenue: the composition is the best of the four quarters we have covered. Revenue grew 3% sequentially despite Middle East revenue falling 13% to $1.66B, because North America, Latin America, Europe & Africa and Asia all grew. Management stated that this was the first quarter to mark a return to year-on-year revenue growth outside the Middle East, which means the entire remaining 5% organic decline is attributable to the conflict-affected region.
• Margins: the 83bps of sequential adjusted EBITDA margin expansion was achieved while the highest-margin region shrank, which is the opposite of the mix effect you would normally expect. Digital did most of the work, with adjusted EBITDA margin up 860bps sequentially to 34.7%, but Production Systems also added 138bps on OneSubsea recovery and artificial lift, and Well Construction held margin flat despite the disruption.
• Cash: free cash flow swung from negative $23M to positive $716M, a $739M improvement, on the seasonal working-capital reversal and the absence of the first quarter's annual incentive payouts. Management expects the second half to be "materially higher" than the first. This is the item that most needed to reverse and it did.
• Cost actions: the CFO disclosed that SLB took temporary cost actions in the Middle East this quarter, having explicitly declined to do so in the first quarter. That is what kept the incremental regional earnings drag below the guided $0.06 to $0.08 range. It is a sensible adjustment and a small retreat from the "preserve all capacity" posture of April.
• What is still deteriorating: Reservoir Performance margin fell both sequentially and year on year, to 14.9% from 18.6%, the only division to do both. Ex-ChampionX revenue remains negative at -5% year on year. Net debt rose again, by $506M to $8,727M, despite positive free cash flow, because $648M went to buybacks and roughly $438M to dividends.

Segment Performance

Assessment: two of five divisions expanded margin year on year, against none last quarter, and three of five expanded sequentially. The two that improved year on year are the two smallest, Digital and All Other, which together are 13% of revenue. The three Core divisions remain between 120bps and 370bps below prior-year margin. That is the shape of a company whose growth engines are working and whose cyclical base has not yet recovered.

Digital

Digital delivered the strongest quarter relative to expectation. Revenue of $697M rose 9% sequentially and 18% year on year, or 12% year on year excluding ChampionX's $34M contribution. Pretax operating margin of 27.8% expanded 683bps sequentially and 187bps year on year, and adjusted EBITDA margin of 34.7% expanded 860bps and 324bps respectively. Annual recurring revenue reached $1.04B, up 15% year on year for a third consecutive quarter.

"Digital, AI, and data-driven workflows are playing an increasingly important role in improving subsurface understanding, accelerating decision making, and enhancing operational performance. We continue to see strong demand for these capabilities going forward." — Olivier Le Peuch, Chief Executive Officer

The CFO attributed the margin expansion to higher exploration data licence and transfer-fee sales plus improved profitability in Digital Operations and Platforms & Applications, which is a healthier mix than a single lumpy category carrying the quarter.

Assessment: this validates the seasonality explanation given in April, when the same margin printed 26.1%. Three consecutive quarters of 15% ARR growth is now a trend rather than a datapoint, and the recurring base at $1.04B against an annualised division run rate of roughly $2.79B is about 37% of Digital revenue. This pillar has done what we asked of it in every quarter of our coverage.

Production Systems

Revenue of $3,771M rose 7% sequentially and 29% year on year, with ChampionX contributing $865M. Excluding it, revenue fell 1% year on year, a marked improvement from the 6% decline last quarter. Pretax operating margin of 15.5% expanded 138bps sequentially, which the CFO attributed to improved profitability in OneSubsea and artificial lift plus the accretive contribution of ChampionX's production chemicals and artificial lift businesses.

"Production Systems revenue grew 7% sequentially supported by U.S. unconventionals and international markets, as customers increasingly prioritized solutions that enhance production, improve recovery and extend asset life. This drove growth in artificial lift, valves, surface production systems and production chemicals, further highlighting the strategic value of ChampionX in our portfolio." — Olivier Le Peuch, Chief Executive Officer

Assessment: the OneSubsea margin recovery flagged as an expectation in April has begun, and the CFO said it will continue through the second half. ChampionX margins are described as rising quarter after quarter despite chemical input inflation, which is the synergy programme working. Production Systems is now the clearest evidence that the production and recovery reframe was a good strategic call rather than a convenient narrative.

Well Construction

Revenue of $2,742M fell 2% sequentially and 7% year on year, primarily on the Middle East disruption, partly offset by higher drilling activity in Latin America. Pretax operating margin of 15.2% was essentially flat sequentially, as lower Middle East profitability was offset by improved profitability in North America and Latin America, and remains 338bps below the prior year.

Assessment: holding margin flat sequentially through a quarter in which the region that matters most to this division declined 13% is a better outcome than the headline suggests, and it is the first time in our coverage that Well Construction has not compressed sequentially. The year-on-year gap is still the largest structural problem in the portfolio, and management identified this division alongside Reservoir Performance as where the downside scenario would concentrate.

Reservoir Performance

Revenue of $1,556M fell 2% sequentially and 8% year on year, and pretax operating margin of 14.9% fell 121bps sequentially and 370bps year on year, both driven by the Middle East disruption. It is the only division whose margin declined on both measures.

Assessment: the most Middle East-exposed division and therefore the worst-hit, which also makes it the largest single beneficiary of the recovery management describes. The restoration sequence being outlined, intervention first, is precisely this division's work. The risk is symmetrical: it is also the division that carries the most damage in the re-escalation scenario.

All Other, and Data Center Solutions

All Other revenue of $505M rose 14% sequentially and fell 13% year on year, with pretax operating margin of 28.2% expanding 267bps sequentially and 151bps year on year. Inside it, Data Center Solutions revenue reached $186M, up 80% year on year and 33% sequentially, with first-half revenue of $327M up 63%.

The most consequential disclosure of the quarter was the doubling of the forward target.

"The Data Center Solutions business remains on track to exceed $1 billion annualized revenue run rate by the end of this year. As we broaden our offering and further diversify our customer base and geographic footprint, we expect to surpass $2 billion annualized revenue run rate as we exit 2027." — Olivier Le Peuch, Chief Executive Officer

SLB was named a delivery partner for Meta's new 1GW data centre in Canada, widened its scope to include engineering and design, and formed an alliance with Liberty Energy combining SLB's modular infrastructure with behind-the-meter power generation, alongside a next-generation geothermal pilot.

Assessment: a $2B annualised exit rate in 2027 against $744M annualising today requires roughly 2.7x growth in six quarters, and management stated on the call that the backlog to support it is already in place. That is a materially stronger claim than a demand-based projection. The important counterweight, disclosed for the first time this quarter, is that the business is not currently accretive to SLB's overall margins, so scaling it to $2B dilutes consolidated margin percentage even as it adds earnings and cash. Anyone modelling a margin recovery to 24% and beyond needs to hold both facts at once.

Key KPIs

Key Topics & Management Commentary

Overall Management Tone: The most confident of the four calls in our coverage, and confident in a specific and checkable way rather than a rhetorical one. Where April substituted a multi-year narrative for numbers, this call put numbers back on the table, extended them two quarters out, and volunteered a downside scenario with a dollar value attached. Management was also more willing to name what is not yet fixed, describing the Middle East recovery timing as uncertain and disclosing that the fastest-growing business is not margin-accretive.

1. Growth broadened outside the Middle East

The central operational fact of the quarter is that the rest of the portfolio more than covered a 13% sequential decline in its most important region.

"SLB delivered solid second-quarter results, as broad-based sequential growth across international markets — led by offshore activity in Latin America, Europe & Africa and Asia — more than offset the impact of continued disruptions in the Middle East." — Olivier Le Peuch, Chief Executive Officer

Management added that excluding the Middle East, revenue grew sequentially across all divisions, supported by higher offshore activity, a rebound in US unconventionals and demand for production and recovery solutions, and that the quarter marked a return to year-on-year revenue growth outside the region.

Assessment: this is the single most important thing in the release and it directly addresses the bear point we have carried since initiation. If the organic decline is now entirely a Middle East phenomenon, and the Middle East is guided to recover to 95% of its prior-year level by the fourth quarter, then the like-for-like shrinkage that defined 2025 has an identifiable end. That is a genuine change in the thesis, and it is why this is an upgrade.

2. Guidance returns, with a downside case attached

Having declined to guide in April, management issued a third-quarter guide, a preliminary fourth-quarter outlook, and a quantified downside scenario in the same breath.

"Based on this trajectory, we expect global sequential revenue growth between 3% and 4%, with adjusted EBITDA margin expansion of approximately 75 basis points. ... In the event of a significant reescalation that disrupts ongoing remobilization effort and results in flat sequential Middle East revenue, we estimate third quarter revenue will be approximately $150 million lower than our base case assumption. This would translate into an adjusted EBITDA headwind of approximately $75 million." — Olivier Le Peuch, Chief Executive Officer

Assessment: publishing the downside case alongside the base case is the single most creditable disclosure decision of the four quarters we have covered, and it is exactly what was missing in April. It also carries a useful signal: $75M of EBITDA on $150M of revenue is a 50% decremental, which tells you how much operating leverage runs through the Middle East line in both directions. That number is the reason the recovery, when it comes, should be sharp.

3. A fourth quarter above $10 billion

The preliminary fourth-quarter outlook is what moved the stock, because it implies a quarter better than any SLB has produced in our coverage window.

"Our preliminary outlook assumes that Middle East activity reaches between $2.1 billion and $2.2 billion or approximately 95% of the revenue achieved in the fourth quarter of 2025. Based on this assumption and support of a deepwater momentum in a typical year-end digital and product sales, we'd expect fourth quarter revenue to surpass $10 billion, approximately 5% growth year-over-year. We also expect adjusted EBITDA margin to be approximately 24%, in line with the fourth quarter of last year." — Olivier Le Peuch, Chief Executive Officer

Assessment: approximately 5% growth on last year's $9,745M is roughly $10.23B, which at 24% gives about $2,456M of adjusted EBITDA, above the $2,331M record set in the fourth quarter of 2025. Annualised, that exit rate is $9.8B, some 20% above the full year the same guidance implies. The distance between the year and the exit rate is the whole investment case, and it is also the reason the stock can look expensive on 2026 and reasonable on 2027 at the same price.

4. Data Center Solutions doubles its 2027 ambition

The exit-2027 target went from unstated to above $2 billion of annualised revenue, and management was asked directly how much of it is already contracted.

"First, to keep it simple. I think the backlog is already in place to support this $2 billion or more. So that gives us opportunity to chase for more and to perform our future and to hire and to develop our scope from design to expanding our capability set." — Olivier Le Peuch, Chief Executive Officer

Management also described the scale already achieved, saying SLB has delivered 1.3 gigawatts of equipment capacity across more than 20 or 30 different data centres from a single manufacturing site, and set out the expansion path into design, system integration, cooling and decarbonised power.

Assessment: "the backlog is already in place" converts this from a demand forecast into an execution question, which is a much better kind of risk. The Meta 1GW Canadian award and the NVIDIA design-partner designation from last quarter give the business two anchor references. The offsetting disclosure is below.

5. The data centre business is not margin-accretive

Asked to describe the economics, the CFO was more candid than management has been about any new business in our coverage.

"Yes, from a pure margin standpoint, this business is currently not accretive to SLBs overall margins, but of course, it's very accretive to top line growth and very accretive to earnings growth. And as you alluded to, it is a capital-light business model that we have and the type of contract and contractual terms we have result into very strong free cash flow generation." — Stephane Biguet, Chief Financial Officer

Assessment: this deserves more attention than it received. Scaling a dilutive-margin business from roughly $744M to over $2B of annualised revenue mechanically drags the consolidated margin percentage, which complicates every margin-recovery model including management's own path back toward 24% and above. The right way to hold it is that Data Center Solutions is a free-cash-flow and earnings story, not a margin story, and consolidated margin should be judged excluding it.

6. Middle East recovery: management pushes back on the fast-recovery consensus

The most differentiated view expressed on the call was that Middle East production takes longer to return than the market assumes, offered in response to an analyst who flagged it as a controversial position.

"While activity began to recover in certain countries during the second quarter, the timing of a full recovery remains uncertain and will depend on a durable resolution of the conflict. As activity improves, we expect the return to full production capacity to take time." — Olivier Le Peuch, Chief Executive Officer

Management graded the recovery by country, describing activity restored and strengthening in the UAE and Qatar, less so in Saudi Arabia, and Iraq constrained by security, and framed the restoration work itself as service-intensive: higher well intervention, increased equipment demand, infrastructure repair and the realignment of shipping logistics.

Assessment: taking the less convenient side of a debate is a credibility marker, particularly when the guide already embeds a fourth-quarter Middle East recovery to 95% of prior-year levels. Those two positions are consistent only if the recovery is activity-led rather than production-led, which is what management is saying: intervention and remobilisation revenue comes back before full production capacity does. That distinction favours SLB's revenue line ahead of the region's output.

7. Cost inflation is fading; pricing is not, yet

Asked about both the conflict-driven cost inflation and Middle East pricing, management separated the two.

"Now from the pricing, pricing has been generally speaking, globally and and partly in large competitive tenders be it in integration, in stimulation and subsidies has been something that has been with us -- now the market is tightening as the market is starting to normalize for additional growth in national capacity naturally and gradually, the outlook will improve as capacity will tighten." — Olivier Le Peuch, Chief Executive Officer

On costs, management said SLB is learning to reroute logistics and localise supply differently, and that the excess costs "will fade away" and be gradually removed.

Assessment: the cost side is improving and the pricing side is unchanged, with relief framed as a 2027 event conditional on capacity tightening. That is the same pricing story we have heard for three quarters and it remains the reason consolidated margin recovers to 24% in the fourth quarter on seasonal mix rather than on price.

8. Free cash flow reverses, buyback accelerates

Free cash flow of $716M reversed the first quarter's negative $23M, and the buyback stepped up to $648M from $451M.

"Consistent with our historical trends, we expect our free cash flow in the second half of the year to be materially higher than in the first half on improved earnings, higher customer collections and lower inventories." — Stephane Biguet, Chief Financial Officer

Assessment: the $739M sequential swing is the concrete answer to the concern we raised in April. Share count fell 11M to 1,484M, the first real reduction of our coverage window after a year in which acquisition issuance overwhelmed the programme. Half-year repurchases of $1,099M put SLB 46% of the way to the $2.4B minimum, which is on pace. Net debt still rose $506M, so returns are running slightly ahead of cash generation, which the guided second-half cash flow should correct.

9. Offshore and exploration inflect

Management described an offshore and exploration cycle turning from pipeline into activity, tied explicitly to the energy-security response.

"We see that exploration cycle and appraisal is developing nicely. And I think we see this not being a trend of 1 quarter, a long-term trend that we support replace -- reserve replacement across different basins working frontier in factored exploration deepwater but also in some land operation to further secure eventual development in some regions." — Olivier Le Peuch, Chief Executive Officer

Management also set out the conversion mechanics when asked how final investment decisions translate to revenue: typically at least twelve months from FID to first well, with deepwater developments running two to three years minimum and often five to six across phases.

Assessment: the honest read is that the offshore cycle is real, is visible in this quarter's Digital Exploration and OneSubsea numbers, and converts to revenue slowly. A twelve-month minimum lag from FID means the FIDs being sanctioned now support 2027 and 2028 rather than the year in progress. That is bullish for the out-years and irrelevant to the multiple being paid on 2026.

10. Venezuela moves from option to pipeline

Venezuela has featured in each of the last three calls as an unpriced option. This quarter management described contracts being secured and resources mobilising.

"So this year, it means that we are securing contracts. We are securing work scope with international company that are -- that either were there or that are reinforcing their position in country, and we are accompanying them into paying and planning mobilizing resources as we speak with significant setup that will happen in the next few months to give us a significant exit rate that will enter 2027 with multiple customers and multiple contracts." — Olivier Le Peuch, Chief Executive Officer

Assessment: a step up from prior quarters, moving from readiness to contracted work, though still with no revenue figure attached and with management declining to say whether the historical peak of more than $1 billion is reachable. Management also noted an earthquake affected the country during the quarter. We continue to carry this at zero in the valuation and would rather be surprised.

Guidance & Outlook

Implied full year: chaining the guidance gives roughly $37.2B of revenue and $8.17B of adjusted EBITDA, a 22.0% full-year margin. Revenue lands inside January's $36.9B to $37.7B range; adjusted EBITDA falls about $433M below the bottom of January's $8.6B to $9.1B. Neither range was formally reinstated.

Implied exit rate: the guided fourth quarter of roughly $2,456M of adjusted EBITDA annualises at $9.8B, some 20% above the full year. That gap, not the full year, is what the shares are being asked to pay for.

Guidance style: a marked improvement. Publishing a base case, a downside case with dollar values, a division-level breakdown, and a preliminary quarter beyond the guided one is more disclosure than SLB offered even in January. The conditionality is honest and specific: the Q4 outlook rests on Middle East revenue reaching $2.1B to $2.2B, which is a number that can be checked in three months.

Analyst Q&A Highlights

Nine analysts, and the session was dominated by two subjects: the mechanics of the Middle East recovery and the scale of the data centre business. The questioning was more probing than last quarter, with several analysts pushing for specifics management had not volunteered.

Unpacking the step-up to a $10 billion quarter

The opening question asked management to decompose the fourth-quarter target and then tried to extrapolate it into an annual run rate for the following year.

Q: "You mentioned the Middle East getting back to, I think it was $2.1 billion to $2.2 billion in 4Q, 95% of last year. How much of a step up is that from 3Q? And how do you see the other geo markets stepping up in 4Q, if you can unpack that, then move to $10 billion. And as we start to think about 2027 is that $10 billion a good run rate to think about the potential for your top line in '27 so call it something close to a $40 billion top line run rate next year. Is that reasonable?"
— Scott Gruber, Citigroup

A: "I will not comment at this point on '27, but I can comment on Q4 and what it means for the setting and accompanying outlook that we see. ... Q4 step-up from the third quarter will be characterized by a combination of factors, the first being the further Middle East recovery ... The second factor will be the usual year-end sales into Digital and Provision system and finally, data center."
— Olivier Le Peuch, Chief Executive Officer

Assessment: the refusal to endorse a roughly $40B 2027 run rate is the correct answer and an informative one. The fourth quarter is seasonally the strongest, carrying year-end digital and product sales that do not repeat in the first quarter, so annualising it overstates the base. Management declining to accept the extrapolation while guiding the quarter itself is a distinction the market should hold onto, because the difference between $9.8B of annualised exit-rate EBITDA and the $8.17B the year will actually deliver is where the valuation debate lives.

Whether Middle East production really takes longer to return

The sharpest challenge of the call put management's cautious recovery view against a market that expects a faster snapback.

Q: "On the Middle East, you had mentioned production is going to take longer to return. I think that's a little bit controversial. I think the broader market seems to think that production comes right back very quickly within a couple of months. Can you tell us why you think that's going to take a little bit longer?"
— David Anderson, Barclays

A: "It will not be prudent to assume that things will restore in weeks. ... Now well intervention and the capacity that many countries have to restore, yes, it will take weeks and months. And yes, as we exit this year. Certain countries will already be well on their way to have start full capacity, if not being on our way to expand capacity beyond."
— Olivier Le Peuch, Chief Executive Officer

Assessment: the answer separates SLB's revenue recovery from the region's production recovery, and the distinction is favourable to SLB. Intervention and remobilisation work is what SLB gets paid for, and it precedes full production capacity by months. Management is simultaneously more cautious than consensus on barrels and comfortable guiding a fourth-quarter regional revenue recovery to 95% of prior-year levels, which is coherent rather than contradictory once the distinction is drawn.

The economics of the data centre business

Questioning on Data Center Solutions moved past the growth rate to what the business is actually worth, and produced the most candid financial disclosure of the call.

Q: "Can you just simplify what exactly is the product that you're providing here for every part of the data center and with the value add to customers. And then, can you just talk about how we should think about the economics of this? I would imagine it's a little bit lower EBITDA margin, but higher free cash flow conversion."
— Neil Mehta, Goldman Sachs

A: "Yes, from a pure margin standpoint, this business is currently not accretive to SLBs overall margins, but of course, it's very accretive to top line growth and very accretive to earnings growth. And as you alluded to, it is a capital-light business model that we have and the type of contract and contractual terms we have result into very strong free cash flow generation."
— Stephane Biguet, Chief Financial Officer

Assessment: the analyst framed the answer correctly before it was given, and management confirmed it without hedging. The consequence deserves to be stated plainly: growing Data Center Solutions from roughly $744M to more than $2B of annualised revenue is a headwind to the consolidated margin percentage, at the same time as management guides that percentage back toward 24%. Both can be true, and modelling them together is now a requirement rather than a nicety.

How much of the $2 billion target is already contracted

The final question of the call went straight to the credibility of the newly doubled target.

Q: "You could talk a little bit more on the point to get to the $2 billion run rate. How much of that currently sits in backlog? And how much do you need to go get? And maybe you could talk a little bit more about the pipeline of opportunities, maybe how many different projects you're looking at?"
— Marc Bianchi, TD Cowen

A: "First, to keep it simple. I think the backlog is already in place to support this $2 billion or more. So that gives us opportunity to chase for more and to perform our future and to hire and to develop our scope from design to expanding our capability set and to try to participate to design and start to expand as well."
— Olivier Le Peuch, Chief Executive Officer

Assessment: the most valuable answer in the session. A target underpinned by existing backlog is an execution risk; a target underpinned by a pipeline is a demand risk. Management claimed the former, unambiguously, six quarters ahead. That is a specific and gradeable statement, and it is the one we will hold to hardest, because a 2.7x revenue increase in six quarters on already-signed backlog would be an unusual outcome in any industry.

Core margin momentum into 2027

An analyst tied together the several moving parts inside the Core and asked what carries margin toward the guided fourth-quarter level and beyond.

Q: "I wanted to ask about your margin outlook in the core, OneSubsea, ChampionX some of the synergy pull-through there, well construction held up really well. just thinking about this margin momentum as you head into 2027 off that 24% EBITDA margin that you stated for your expectation for fourth quarter this year."
— Derek Podhaizer, Piper Sandler

A: "So on the OneSubsea side, if you remember, we had a few transitory issues and start-up costs in the first quarter and the good news is that the margins increased in the second quarter. ... And as Olivier indicated, we are quite happy to see quarter after quarter ChampionX margins continuing to increase despite some inflationary pressure we have on chemicals ... So that's what will get us to this more or less the same level in Q4 as we were in Q4 of last year, around 24%."
— Stephane Biguet, Chief Financial Officer

Assessment: the bridge to a 24% fourth quarter is OneSubsea normalisation, ChampionX synergies, and year-end Digital seasonality. Note what is absent: price. Every component named is either a self-help item or a seasonal one, which is consistent with the pricing commentary elsewhere on the call and means the margin recovery is being manufactured rather than earned from the market. That is achievable but it does not compound into 2027 the way a pricing recovery would.

The durability of the exploration cycle

A follow-up probed whether the pickup in exploration data sales is a price-driven blip or the start of something multi-year.

Q: "How are you thinking about the durability of the exploration cycle? Is this just a reaction to the higher crude prices? Do you think we'll see a multiyear improvement in exploration activity, given the need for the industry to locate new reserves, shale production growth slows and in order to improve the diversity of supply given the Middle East conflict?"
— Scott Gruber, Citigroup

A: "I think indeed, the fundamental first favorable and constructive for the global exploration. And it's driven by energy security, by the resource -- exporting resource national resource and to the need for certain, if not the majority of the customer to replace the reserve and to bring and build the long-term portfolio that includes deepwater, highly valuable resource."
— Olivier Le Peuch, Chief Executive Officer

Assessment: the exploration argument is the most structurally sound part of the recovery case, because reserve replacement is a balance-sheet necessity for operators rather than a discretionary response to spot prices. It also flows to the highest-margin parts of SLB, Digital Exploration and premium wireline, which is visible in this quarter's Digital margin. The caution is that Digital Exploration is the lumpiest revenue category in the company and a strong quarter there is not by itself a cycle.

Middle East competitive positioning against peer tender wins

One analyst raised competitor tender announcements in Saudi Arabia and Iraq and asked whether SLB is losing ground while the region is disrupted.

Q: "We've seen a number of, call it, tender announcements from some of your OFS peers in Saudi Arabia and Iraq. And I was wondering if you could just talk a little bit about your pipeline of potential opportunities and maybe just general relative positioning in light of some of these awards."
— Arun Jayaram, JPMorgan

A: "We have built quite a backlog of contract in the last 18 months in the award, including the summer ward in Saudi, Iraq, and UAE that we -- and in Kuwait that we're executing in part of our backlog, and we feel very good about those wins and those contract the board. And we believe that we have maintain reinforce in most of the country are market position."
— Olivier Le Peuch, Chief Executive Officer

Assessment: a fair challenge answered with an assertion of position rather than evidence of it. No win rate, no backlog figure and no market-share data were given for the region that is both the largest source of the current shortfall and the largest source of the guided recovery. Given the fourth-quarter outlook depends on Middle East revenue reaching $2.1B to $2.2B, some quantification of the contracted portion of that would have been the most useful disclosure management could have made and did not.

What They're NOT Saying

1. The full-year ranges are still not reinstated. Two quarters of guidance were given, and chaining them implies FY2026 adjusted EBITDA about $433M below January's low end. Management neither reinstated the range nor acknowledged that the implied year falls short of it.
2. No contracted portion of the Q4 Middle East recovery. The fourth-quarter outlook rests on Middle East revenue of $2.1B to $2.2B, up 27% to 33% from this quarter's $1.66B. How much of that is contracted rather than assumed was not disclosed and not asked.
3. Data Center Solutions margin is characterised but not quantified. Management confirmed the business is not accretive to consolidated margins without giving its margin, so the drag from scaling it past $2B cannot be modelled.
4. No purchase price for Tachyus. The third acquisition in two quarters, and the third with no disclosed price, revenue or margin.
5. The ChampionX synergy number went unquantified again. Margins are described as increasing quarter after quarter, but neither the amount realised in the quarter nor progress against the roughly $200M expected in 2026 was given. It has now been two quarters since a synergy figure was disclosed.
6. Nothing on the S&P Global Energy software acquisition. Announced the day before last quarter's print and expected to close in the second half of 2026 or early 2027, it received no update, no price and no question.
7. No 2027 framework of any kind. Management explicitly declined to comment on 2027 when invited, while simultaneously grounding the entire investment case in 2027 and 2028.
8. The release dateline changed from Houston to London. Every prior release in our coverage was datelined Houston. No explanation was offered in the release or on the call, and none was sought.

Market Reaction

• Pre-print setup: SLB closed at $47.22 on July 23, down 15.9% from the $56.15 close at the prior print and 18.6% below the $58.01 52-week closing high set during the quarter. Year to date the shares were up 23.0%, over twelve months up 34.0%, and over the trailing thirty days up just 1.3%. The S&P 500 was up 8.2% year to date.
• Reaction session: the stock opened at $50.07, a 6.0% gap higher, traded a range of $49.74 to $52.59, and closed at $52.42, up 11.0% or $5.20. The S&P 500 was unchanged.
• Volume: 28.9M shares against a 30-day average of 15.2M, a 1.9x multiple.
• Shape: gapped up 6%, extended through the session, and closed within $0.17 of the high.

This is the first genuinely decisive session of our coverage. The three prior prints produced closes of -0.9%, -0.3% and +2.6%; this one produced +11.0% and closed on the high. The difference is that the shares entered this print off their highs rather than on them, having given back 16% since April, so there was room for good news to be paid for.

Three things arrived at once and each is independently sufficient to move a stock: the quarter beat both the consensus and management's own scenario, guidance was reinstated and extended two quarters out with a preliminary fourth quarter above $10 billion, and the data centre exit-2027 target was doubled with the claim that backlog already supports it. The gap-and-extend pattern, closing within $0.17 of the session high on 1.9x volume, is a repositioning move rather than a short-covering one.

The setup matters for what comes next. At $52.42 the shares are still 9.6% below the 52-week closing high of $58.01 set in the intervening quarter, which is where the market last priced the recovery before the first quarter disappointed. The market has restored roughly two-thirds of what it took away in April.

Street Perspective

Debate: is the Q4 exit rate the right basis for valuation?

Bull view: the bull case being made on the Street is that a fourth quarter above $10 billion at a 24% margin annualises to nearly $9.8B of adjusted EBITDA, that the Middle East will still only be at 95% of prior-year levels at that point with further recovery ahead, and that Data Center Solutions doubles again through 2027. On that basis 8.8x the exit rate is cheap for a company entering an upcycle with two structurally growing businesses attached.

Bear view: the bear camp contends that the fourth quarter is seasonally the strongest of the year, carrying year-end digital licence and product sales that do not repeat, and that management itself declined to endorse annualising it when invited. On the year the guidance actually implies, $8.17B, the shares trade at 10.6x, which is not cheap for a business whose adjusted EPS is down 26% year on year.

Our take: management's refusal to extrapolate is the tell, and it was the right call. The honest position is that both multiples are real and the truth is between them: the correct 2027 base is well above the 2026 year and well below four times the fourth quarter. We model roughly $9.6B, which puts the shares at 9.0x, and that is a fair rather than a compelling multiple.

Debate: how much credit does the data centre business deserve?

Bull view: some sell-side desks argue that a business growing 80% year on year, named a delivery partner by Meta on a gigawatt-scale project and a modular design partner by NVIDIA, with backlog already covering a $2 billion exit-2027 run rate, is a genuine industrial-technology franchise that belongs on a multiple bearing no relation to oilfield services.

Bear view: the skeptics note that it is 2.1% of revenue, that management has now confirmed it is dilutive to consolidated margin, that competition from dedicated modular-infrastructure suppliers will intensify as the market matures, and that the same All Other bucket produced a $210M goodwill impairment on carbon capture two quarters ago.

Our take: the backlog claim is what changes this debate. A demand forecast deserves a discount; a backlog-covered target deserves most of the credit, subject to execution. We would take management at their word and also hold them to it, because a 2.7x revenue increase in six quarters is an unusual claim. The margin dilution is the part the bulls are not modelling and it should temper the multiple applied to the consolidated business.

Debate: does the pricing environment ever improve?

Bull view: a growing consensus view holds that the Middle East disruption removes capacity from the market, that the recovery plus the offshore FID cycle tightens it further, and that pricing turns in 2027 as management suggested, delivering the operating leverage that has been absent from the whole recovery so far.

Bear view: the bear camp contends that pricing pressure has been described in identical terms on four consecutive calls, that the fourth-quarter path back to a 24% margin is built entirely on self-help and seasonality, and that a market which conceded price through the downturn tends to concede it again when volume returns.

Our take: the bears have been right for four quarters and the setup is finally changing, because the capacity argument is genuine when a fifth of the industry's activity has been idled. But management framed relief as gradual and conditional on capacity tightening, and nothing in the guided fourth quarter depends on it. We treat a 2027 pricing recovery as upside to our estimate rather than as part of it.

Model Update Needed

Valuation framework. At the $52.42 close, 1,484M shares give a market capitalisation of $77,791M. Adding net debt of $8,727M produces an enterprise value of $86,518M. Against trailing four-quarter adjusted EBITDA of $8,064M that is 10.7x; against the FY2026 implied $8,167M it is 10.6x; against the annualised fourth-quarter exit rate of $9,824M it is 8.8x. The dividend yields 2.3% and the committed return of more than $4B is 5.1% of the market capitalisation. Net leverage is 1.08x.

Across our four quarters of coverage the enterprise value has gone from $57.9B to $86.5B, up 49%, while trailing adjusted EBITDA has gone from $8,244M to $8,064M, down 2%. The share price is 60.6% above the initiation close and 6.6% below the level at which we downgraded three months ago.

Valuation impact: we set a fair-value range of $49 to $59. The low end is 10.0x the FY2026 adjusted EBITDA the guidance implies; the high end is 10.0x our FY2027 estimate of $9.6B, built by applying the normal seasonal shape to the guided fourth-quarter exit rate rather than annualising it. At $52.42 the shares sit about 3% below the $54 midpoint, which is a Hold. The range is wide because the two anchors are genuinely far apart, and closing that gap is what the next two quarters are for.

Thesis Scorecard Post-Earnings

Overall: the strongest quarter of our coverage on the balance of evidence. All three bull pillars confirmed, three of five bear points challenged or resolving, and the two that remain live are both about margin quality rather than direction. The company is doing what it said it would; the question is only what that is worth.

Action: Upgrading to Hold from Underperform. The trigger we set in April was explicit, that the second quarter beating the flat-sequential scenario would return us to Hold, and it beat it by $126M of adjusted EBITDA. The downgrade captured roughly 11 points of relative underperformance in a single quarter and that tactical call has done its work. We stop short of Outperform because our stated condition, consolidated margin back above 23% with the Middle East genuinely normalised, is guided for the fourth quarter but not delivered, and because the shares at $52.42 sit near the midpoint of a fair-value range whose width reflects real uncertainty. We would upgrade to Outperform if the third quarter lands at or above the guided base case and the fourth-quarter Middle East recovery to $2.1B to $2.2B is visibly contracted, or on any pullback toward the mid-$40s. We would return to Underperform if the conflict re-escalates into the downside scenario, if the fourth-quarter $10 billion target is walked back, or if the data centre backlog claim proves less firm than stated.