BorgWarner's (BWA) stronger-than-expected Q2 results and growing data center power portfolio improved its earnings outlook beyond 2026, though further evidence of customer demand is needed to support additional stock gains, Morgan Stanley said in a note Wednesday.

The company raised its full-year earnings per share guidance following share repurchases while maintaining its margin and free-cash-flow outlook despite plans to increase H2 research and development spending by $10 million to $15 million, the investment firm said.

BorgWarner's turbine generator remains on track for a 2027 launch and is expected to generate more than $300 million in revenue that year amid strong hyperscaler interest, with management considering expanding capacity beyond its initial 2-gigawatt plan, according to the note.

The investment firm said BorgWarner is advancing battery storage and power conversion products for data centers and artificial intelligence applications, targeting production readiness in 2027, while increasing its share repurchase authorization by $1 billion to $1.35 billion after buying back $650 million of stock over the last four quarters.

Morgan Stanley reiterated an equal-weight rating on BorgWarner and raised the price target to $71 from $67.

Shares of BorgWarner were up 0.7% in Thursday trading.

Price: 67.22, Change: +0.44, Percent Change: +0.66