By Dan Victor
It took conflict in the Middle East for the market to start paying attention to the energy sector again. It's an opportune time to drill down on SLB stock.
The Houston-based company, formerly known as Schlumberger, has an $87 billion market capitalization and is the world's largest oilfield-services provider, with operations in 120 countries. It has been a banner year for the stock, up 47% thus far in 2026, outperforming the 28% gain in the Energy Sector Select SPDR exchange-traded fund. We think there's more upside on the horizon.
The rise in oil prices, from about $55 a barrel in early January to a recent price above $90, certainly helps SLB's case. What many investors might be missing is that the stock's surge comes largely despite the ongoing Iran war and the energy supply disruptions in the region -- not because of them. Multiple structural tailwinds position SLB as a long-term winner.
The bullish case for SLB looks ahead to a postconflict scenario in which stability in the region will lead its energy customers to rapidly rebuild production capacity and invest in its next-generation energy technologies. We see the stock climbing to a fair value of $80 over the next 12 months, representing a 30 times earnings multiple and a 38% upside from the recent price of $58.
Tyler Hardt, chief portfolio manager at Pelican Bay Capital Management, shares that optimism. "SLB is very strong," he says. "Recall that the stock was already up 30% at the start of the year, propelled by its underlying operating and financial momentum, before shares sold off sharply in early March as the Iran war broke out." The move by investors to dump the stock was misguided, Hardt says.
The initial market reaction seemed justified, given that Middle East operations contributed roughly a third of SLB's total revenue and approximately half of its profits in 2025. Key customers in the region such as Saudi Aramco and QatarEnergy suspended rig operations and announced security-related shutdowns, providing additional support for the argument to dump shares. In the first quarter, total revenue of $8.7 billion was up 3% year over year but down 11% sequentially from the fourth quarter.
Management took a constructive tone on the first-quarter earnings conference call on April 24. "We expect many countries to accelerate efforts to diversify supply, strengthen domestic resource development, and rebuild strategic and commercial inventories that have been drawn down during the conflict," said CEO Olivier Le Peuch, who added that operators are accelerating commitments to high-return offshore and digital projects that align with SLB's strengths.
The latest 22% rally in the stock since March 12 to a near three-year high shows the market is beginning to recognize that an end to the war will be a net positive for SLB. "Shares could move rather quickly toward $90 when earnings pick up," says Hardt.
Le Peuch has transformed the company since taking over in 2019 with an asset-light operating model and emphasis on energy technology. Even as production systems and well construction constitute the bulk of the business, SLB doesn't own traditional drilling rigs. Instead, it sells the premium hardware components, such as directional drilling assemblies used to precisely carve out the wellbore for hydrocarbon deposits, as well as submersible pumps, wellheads, and safety valves that allow operators to maintain flow and optimize extraction.
Together, the SLB portfolio of products allows oil and gas producers to target technically complex ultra deep water and offshore reserves as efficiently as possible. That includes advanced chemical treatments and specialty fluids, bolstered by the company's $8.2 billion acquisition of ChampionX in 2025, unlocking exposure to the production phase of a well that can stabilize cash flow across the asset life cycle.
Perhaps the most underappreciated aspect of SLB is its digital strategy as a high-margin growth engine. Decades of geological records, subsurface physics, and mechanical telemetry are proving invaluable for asset management and monitoring, along with enabling advanced autonomous drilling capabilities. The company's flagship Delfi cloud operating system acts as a collaborative space where remote teams at an energy company leverage machine learning to eliminate workflow bottlenecks and significantly speed up drilling cycles.
In March, SLB announced an expansion of a multiyear partnership with Nvidia to run its Lumi data and AI platform using Nvidia computing infrastructure. The plan envisions an industrial-scale " AI factory for energy" to power tailored generative-AI models and agentic-AI tools for energy customers. SLB is building prefabricated ruggedized modular data-center blocks at a manufacturing facility in Louisiana to be deployed by energy companies that need secure on-premises AI supercomputers. This pivot into digital infrastructure represents the future of SLB.
The digital segment crossed $1 billion in annualized recurring revenue this past quarter, with the data-center solutions specifically growing 45% year over year. From that perspective, SLB trading at 20 times earnings can still be appreciated as a bargain. The stock also remains attractively priced next to competitor Baker Hughes, which trades at a 26 times earnings multiple. Baker Hughes has similarly entered the data-center business, but is focused more on power generation with custom-built gas turbines.
Baker Hughes dominates the liquefied-natural-gas equipment market, which has seen fewer disruptions from the conflict in the Middle East. But SLB probably offers more upside during a postwar mobilization phase in the region.
For the full year, Wall Street projects SLB to grow annual sales about 2%, an outlook that could prove to be conservative if the postconflict scenario materializes sooner rather than later. Into 2027, the expectation is for growth to ramp up toward 8%, with a $3.35 earnings-per-share estimate representing a 29% increase from the current 2026 forecast. Meanwhile, high oil prices are positive to its operations in other regions, including Venezuela and Latin America, which have been bright spots. Consistent cash flow supports a plan to return more than $4 billion to shareholders this year through stock buybacks and the regular quarterly dividend, which yields 2%.
In terms of risks, a re-escalation of tensions in the Middle East or a prolonged period of instability in the region would almost certainly undermine the bullish SLB thesis, not to mention carry more concerning consequences to the global economy. Shares could also come under pressure if energy sector sentiment changes abruptly, even if production activity picks up as expected. Investors will want to see evidence that the momentum in SLB's high-tech initiatives is on track.
Overall, there's a lot to like about SLB at the intersection of global energy sustainability and the age of AI. For investors with conviction, the stock could be a gusher into 2027.
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(END) Dow Jones Newswires
May 29, 2026 18:31 ET (22:31 GMT)
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