Dover Sees Similar 2027 Setup, Targets 25% EBITDA Margin as AI Spending Surges

Dover NYSE: DOV expects a similar overall business environment in 2027 to the one it is seeing this year, even as inflation and labor constraints tied in part to the artificial intelligence build-out create challenges, President and CEO Rich Tobin said at a Baird event.

Tobin said North America has performed well, while Europe has been broadly flat. Investments in capacity over the previous two years helped Dover gain share in several product lines, he said, contributing to revenue growth, orders and backlogs.

After reviewing a three-year rolling forecast across the portfolio, Tobin said next year has “a very similar setup” to this year in aggregate, though the contributions from individual businesses will differ. October orders were good, he added.

Growth and margin outlook

In a relatively stable economy, Tobin said Dover’s portfolio should be capable of delivering 4% to 6% annual revenue growth. That expectation includes roughly 1.5% to 2% from pricing and about 3% organic volume growth. The company is currently above that range, he said.

Tobin also said Dover has a clear path to a 25% EBITDA margin in a stable macroeconomic environment, though the timing could fall at the end of 2027 or the beginning of 2028.

The CEO cautioned that orders could eventually decline against prior-year comparisons as lead times shorten after customers have already placed orders. He said Dover is satisfied with its position in the AI build-out but does not believe it is overly exposed to it.

AI-related capital spending is contributing to inflation and making some other customers more cautious about projects, Tobin said. Competition for workers, including welders, has also made hiring difficult in some product categories. Dover has used pricing and productivity improvements to offset those pressures, he said.

Capacity spending and capital allocation

Dover has four greenfield plants under construction, the first time during Tobin’s tenure that it has had that many standalone projects underway simultaneously. He said organic capital investments can deliver returns superior to acquisitions, even though new capacity can temporarily weigh on margins during construction and ramp-up.

As an example, Tobin said margins in Dover’s brazed plate heat exchanger business were depressed for about 24 months while capacity was built. He estimated margins in that business are now 500 to 600 basis points higher as volume absorbs the investment. Dover is also closing a California refrigeration plant and expects a significant margin improvement once the work is complete.

On acquisitions, Tobin said high valuations prevented Dover from pursuing more deals this year. The company’s capital allocation preference has shifted from 70% acquisitions and 30% capital returns at the start of the year to the reverse, reflecting its liquidity and his view that Dover shares are undervalued. Asked whether there was a reason the short-term pace of buybacks would not continue, Tobin said there was not.

End-market trends

Tobin said Dover’s cryogenic components business has benefited from investment in liquefied and compressed natural gas, propane and space launches. He also pointed to growth in components for gas and steam turbines. Natural gas compression has been performing adequately, he said, but expected pipeline construction growth appears to be moving into 2027.

In biopharma and medical markets, Tobin expects growth to slow after a rebound following pandemic-era swings in demand and inventories. He said inventories were balanced in 2025 and described 2026 growth as reflecting current consumption rather than restocking.

Elsewhere, Tobin said Dover’s retail fueling opportunity now looks like a four-year cycle rather than the three years previously anticipated, partly because underground tank shortages have slowed projects. Heat exchanger growth is currently in the 40% range, he said, though he expects the rate to slow. The company plans to add another 20% of capacity by mid-2027.

Internal AI investment

Tobin said Dover has funded this year’s AI spending through cost reductions, including lower programming headcount as the company adopted AI for coding. He expects net AI spending to increase fivefold in 2027 as Dover explores more complex uses on factory floors and in customer management, and said the company is working on ways to offset the expense in its profit and loss statement.

About Dover (NYSE:DOV)

Dover Corporation is a diversified manufacturer of equipment and components for industrial and commercial markets. Founded in 1955, the company has grown through a combination of product development and acquisitions and serves customers around the world. Dover's businesses operate across areas including engineered products, clean energy and fueling, imaging and identification, pumps and process solutions, and climate and sustainability technologies. Its products include fueling and vehicle-service equipment, pumps and fluid-handling systems, packaging and marking equipment, and components used in industrial and commercial applications.

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