Zebra Technologies

Zebra Technologies' second-quarter results came in well above guidance, and it raised its full-year outlook. Sales rose 20% year over year to $1.56 billion (9% organically), and 2026 guidance now calls for 14% to 16% growth, up from 12% to 14%.

Why it matters: Zebra's demand environment keeps getting better across its end markets, and 8% organic growth guidance for 2026 is very strong. We believe the firm is focused on the right growth opportunities within its core competencies and is well-positioned for physical AI implementation. Zebra has traded as an AI hedge in tech in 2026, which we think is only somewhat accurate. We agree the firm doesn't correlate to AI hardware or software infrastructure, but it is well-positioned to deploy AI inference for logistics automation. We like its position here. Memory cost inflation and chip supply constraints remain headwinds in 2026, but Zebra is managing it well. The firm expects to offset $90 million of the total $120 million cost headwind in 2026 with pricing, and we attribute higher guidance to better supply visibility.

The bottom line: We raise our fair value estimate for narrow-moat Zebra to $350, from $330, behind higher short-term growth estimates. Shares rose 20% in early trading, bringing the stock in line with our valuation. Contrary to a broader AI tech selloff, Zebra shares are up 40% since late June. The market has viewed Zebra as a hedge to AI tech hardware, but we also view the firm as well-placed to deploy AI for customers. We now see the firm's organic growth opportunity appropriately priced in. After strong 8% inorganic growth in 2026, we expect organic growth in the midsingle digits to lead Zebra's results over the medium term. We see results led by core mobile computing and printing demand but supplemented by growth adjacencies in machine vision.

BLANK PAGESpecifically, Zebra raised its full-year growth outlook by two points, its adjusted EBITDA margin guidance by 175 basis points (to 23.75% at the midpoint), and non-GAAP guidance by 14% (to $21.00 at the midpoint). Part of the beat in the quarter and the higher guidance was $73 million in tariff refunds recognized in the second quarter. Still, after adjusting for these refunds, the guidance raises are constructive. Removing tariff refunds, we see non-GAAP EPS of about $19.50 for the year (up from the previous outlook of $18.50, and 23% growth from 2025) and adjusted EBITDA margin of 22.5% (up from the prior outlook of 22% and 21.7% in 2025).

Our fair value estimate is $350 per share, which implies a 2026 adjusted price/earnings of 17 times, and an enterprise value/sales multiple of 3 times.

Our fair value estimate reflects our expectations for Zebra to experience 7% annual sales growth through 2030. Zebra should benefit from secular trends toward digital transformation, be it in the growing adoption of an omnichannel strategy at retailers or the digitization of healthcare records and hospital workflows, both of which accelerated during the covid-19 pandemic, in our view. Zebra is also exposed to higher-growth adjacent markets, like RFID and computer vision, and maintains its expanding software portfolio. We also expect Zebra to maintain its share in the slower-growth barcode printing market. Zebra resegmented into the connected frontline and asset visibility and automation segments, starting in the fourth quarter of 2025. Both of these offer a similar growth opportunity, per management, and we agree. Connected frontline focuses on mobile computers and related associate technology, while asset visibility comprises printing, scanning, asset tracking, and machine vision.

We think growing software and higher-margin solutions revenue will expand non-GAAP gross margin past 49% in 2030, slightly above its 2025 level. We expect R&D expenses to remain above 10% of sales throughout our explicit forecast while the firm reinvests in order to build out its software platforms. With a combination of expanding gross margins and incremental operating leverage, we expect Zebra’s non-GAAP operating margin to reach 24% in 2030 compared with 20% in 2025. Management focuses on adjusted EBITDA margin as its profitability metric, which we see expanding to 25% in 2030, compared with 22% in 2025.

We award Zebra Technologies a Narrow Morningstar Economic Moat Rating. We observe switching costs for Zebra’s solutions as they get deeply embedded in customer workflows and processes. With its end-to-end portfolio of specialized products and integration of software, we think Zebra’s customers would face monetary cost and significant time investment to switch AIDC vendors, in addition to risking efficiency losses. As such, we think Zebra will be able to earn excess returns on invested capital for the better part of the next decade.

The AIDC market comprises technologies that identify, verify, record, communicate, and store information. Well-known examples of AIDC technology include bar codes, QR codes, RFID, and biometric scanning; the value that Zebra adds comes from integrating these technologies into workflows to optimize efficiency. It does this via highly custom solutions comprising many of its core technologies.

It is our view that switching costs in enterprise hardware systems typically result from deeply integrated solutions that spread across several touch points of an organization. Zebra has an end-to-end portfolio of solutions that enables it to achieve a wide footprint within its customers. In each bucket of Zebra’s portfolio, its products are highly specialized. For example, the firm sells several dozen different mobile computers, among them handheld devices, wearables, tablets, and vehicle-mounted units. Even within each form factor, different computers are designed for different use cases: inventory management, communication, price checking, route optimization, proof of delivery, and self-checkout, to name a few. Each customer’s solution set is uniquely tailored by Zebra or a channel partner to fit its business. Having the largest set of specialized tools allows Zebra to provide its customers with the highest degree of customization.

In collaborating with its customers to build customized systems, Zebra embeds itself deeply in their workflows. If a customer were using a single Zebra barcode printer, it wouldn’t be very difficult to switch vendors. However, when a customer is using a Zebra solution, adopting printers, scanners, and differently customized mobile computers for different parts of the organization to all work seamlessly together, it would have to at least partially redesign its system and workflow, and the task becomes much more arduous. Because Zebra has the broadest solution set in the industry, it can plug into more parts of an organization and create an even more entrenched system—all while increasing customer productivity. A customer looking to switch away from Zebra would incur significant time investment from retraining employees, financial costs from running two systems simultaneously during the transition, and the opportunity cost of halted or slowed productivity as the new system’s kinks are slowly worked out. Additionally, if a customer wanted to replace Zebra, it may have to find multiple vendors to accomplish the same tasks or face limits to its future capabilities. A Zebra replacement might be lacking in printing or RFID ability, for example, which would mean finding multiple vendors to accomplish what Zebra could do by itself.

Zebra creates an even more integrated—and thus entrenched—system for its customers by layering software on top of its solutions. While Zebra’s hardware forms the arms and legs of a customer’s system—printing and scanning tags—the software, or brain, is what drives the bulk of the efficiency. Zebra has numerous software offerings that integrate into its products, both organically generated or acquired through mergers and acquisitions, that range from mobile device management and security to AI and machine learning for prescriptive analytics. Zebra solutions store and organize the massive amounts of data brought in from a customer’s mobile computers, scanners, and printers, which can then all be fed into an AI-driven algorithm to analyze and provide real-time recommendations. For example, in a retail store, an associate could scan an out-of-stock item’s barcode, and Zebra could instantly assign the task of restocking to the closest idle employee to the item’s back-of-store location. While this is a simple example, Zebra’s solutions allow employees to focus uniquely on the highest-ROI activity at any given time. Zebra also has myriad other specialized software solutions to improve efficiency, like allocating shipments and reducing empty space in a delivery truck. When tailoring a Zebra system to a customer’s needs, the software allows all the hardware to integrate into one cohesive system.

In integrating practical software into its hardware solutions, Zebra creates a compelling use case with customers, all while creating a much stickier product. A customer wanting to switch away from Zebra would not only need to redesign workflows around new hardware with different capabilities, but also need to either redesign applications or programs on top of a new vendor’s software, design an in-house solution, or forgo software altogether. All of these alternatives would lead to financial costs, significant time investment in training employees, and steep risks of lower efficiency than was experienced with Zebra.

In our view, Zebra is unmatched in its software depth and hardware breadth in the industry, and we think it will be difficult for competitors to catch up. Zebra consistently outspends its competitors on R&D—both in absolute terms and as a percentage of revenue—and the majority of this budget goes into software, as more than 70% of Zebra’s engineers are software engineers. By our estimates, Honeywell has been the only competitor that comes within sniffing distance of Zebra’s hefty R&D budget, and we estimate Zebra outspends Honeywell on AIDC R&D by over $100 million per year. Furthermore, with Honeywell’s plans to divest its AIDC business, we believe Zebra’s most well-capitalized competition will struggle to support continued investment to try to unseat Zebra in customers.

Zebra has the largest share of the AIDC market, with the most comprehensive portfolio.

Zebra’s strength in software adds significant value to its devices and solutions and adds to its switching costs with customers.

Zebra should benefit from rising investment in RFID in coming years as a natural fit with its portfolio for asset identification and tracking.

One-third of Zebra’s revenue comes from its legacy printing segment, which faces greater risk of commoditization.

Despite pivoting into software, Zebra classifies only 25% of its revenue as recurring, meaning it still relies on continuously competing for customer contracts.

Zebra is pursuing numerous expansion markets outside its core competencies, like machine vision, and could face risk related to mission creep and spreading its investments too thin.