Linde plc (NASDAQ:LIN) experienced a sharp decline on Friday, with shares falling 5.9% to $478.70, erasing approximately $14 billion in market capitalization. The drop came despite the company reporting second-quarter results that exceeded both sales and adjusted earnings estimates. The market's reaction suggests investors are more concerned about the company's increased capital expenditure plans than its earnings performance.
The company raised its 2026 capital spending midpoint by 9.5% compared to its May outlook, while the adjusted earnings-per-share midpoint only advanced by 0.3%. This significant divergence between capex growth and EPS growth indicates a strategic shift toward higher capital intensity, which may weigh on near-term free cash flow and returns.
According to the updated guidance, Linde now expects 2026 adjusted EPS in the range of $17.70 to $17.90, with a midpoint of $17.80. Capital spending is projected between $5.5 billion and $6.0 billion, up from the previous $5.0-$5.5 billion range. The contracted gas-project backlog also increased to $8.1 billion from $7.1 billion, a 14.1% rise.
Analysts had anticipated a slightly higher full-year EPS midpoint of $17.91, based on FactSet data. The company's guidance implies second-half EPS of $8.98, just 1.8% above the first half's $8.82. For the third quarter, the midpoint of $4.50 is flat compared to the second quarter's actual results, while the implied fourth-quarter EPS of $4.48 is slightly below both the Q3 forecast and analysts' consensus of $4.54.
The second-quarter results themselves were solid. Sales reached $9.289 billion, up 9.3% year-over-year and 3.3% above the LSEG consensus of $8.99 billion. Adjusted EPS of $4.50 came in 0.4% above expectations. However, the adjusted operating margin contracted by 60 basis points to 29.5%, and free cash flow declined 12.7% to $833 million, reflecting higher capital spending.
Electronics emerged as a key growth driver, with sales in the sector up 18% year-over-year, the strongest among Linde's end markets. Electronics now accounts for 10% of gas sales and 22% of the contracted gas-project backlog. The company announced a $1 billion investment in Phoenix, Arizona, to support two new semiconductor fabrication plants, with its Taiwan joint venture planning an additional $800 million for the same undisclosed customer.
CEO Sanjiv Lamba noted, "Customer proposal activity remains robust, primarily across the electronics end market." The expansion underscores Linde's commitment to capitalizing on semiconductor demand, but it also raises questions about the pace of returns on these investments.
Comparatively, Air Products and Chemicals Inc. (NYSE:APD) reported a 12% increase in adjusted EPS for its fiscal Q3, with adjusted operating margin expanding by 110 basis points. While Linde maintains a 3.9-point margin advantage, its margin is narrowing, and its guide-based valuation multiple trades at a premium of about 23%.
Investors are now focused on execution. The backlog ensures stable growth, but the elevated capex demands patience. Friday's selloff suggests the market wants quicker evidence that these investments will translate into earnings growth. With the midpoint of 2026 EPS guidance barely moving, the market is questioning whether the capital intensity shift is justified.
