The difficulty with these companies that rely a ton on the AI segment of the market is we don't really understand how cyclical spending is going to be. We know it will be cyclical to some degree as there is typically peaks and troughs depending on new technology, but we don't really know how much capital expenditures and data center expansion will slow during these periods.
For that reason, it is fairly hard to value these companies. At 15x earnings I would view Hammond as relatively cheap, however they do expect the company's earnings to somewhat flatline over the next few years here and I do believe it is likely due to the CAPEX cycle the market expects from those involved in the AI sector. Obviously Hammond does supply to other areas but lets not kid ourselves the monumental runup in price was due to the company's products being in higher demand due to data center expansion.
My thoughts on IESC are much the same as Hammond, although I do like Hammonds valuation and margin profile a bit better. Both of them are strong companies, excellent balance sheets with virtually no debt, strong free cash flow generation. I'd have no issues holder either of these company's for the long term but as mentioned if AI spend is highly cyclical coming up here and we see it scaled back, it will impact share prices.
The same can be said for Powell. It is a high quality company that has benefitted significantly from a ramp up in data center demand and construction, and will be one that faces significant volatility if data center expansion continues to slow in a cyclical downtrend of spending in regards to AI. The company's stock has already witnessed a pretty big drawdown from peaks but is still trading at 33x free cash flow and 19x expected earnings with low single digit growth expected in the future. To me, the company is fully valued here and would be one I'd pass on.