Atlas Copco Earnings: Weak PC and Server Market Conditions Weigh on Orders

Sales continued to ascend strongly in the second quarter of 2023, rising 31% year on year to SEK 43.4 billion as Atlas Copco works through its considerable backlog of orders from 2022 and early 2023. However, the near-term sales outlook is waning, with chilly demand conditions in semiconductor end markets causing new orders to decline 5% organically in the second quarter, reversing course abruptly from the prior quarter where orders grew 5% organically. Our 2023 financial estimates remain largely unchanged as do our long-term expectations for the narrow-moat stock. Investors sent Atlas Copco shares 5% lower on confirmation that the order book for its important vacuum pump division is weakening cyclically. Nonetheless, Atlas Copco still screens as overvalued, trading at a 22% premium to our unchanged SEK 120 fair value estimate.