EU#5 - From Industrial Giant to the Digital Operating System of the Real World

Siemens: From Industrial Giant to the Digital Operating System of the Real World

For many investors, Siemens still carries an outdated image: a sprawling industrial conglomerate that buys promising businesses only to suffocate them in layers of corporate bureaucracy. It is a convenient narrative—and a wrong one.

In reality, Siemens is in the middle of one of the most disciplined and forward-looking transformations ever executed by a European industrial company. What looks slow from the outside is, in fact, deep structural change. And those who recognize this early may be positioning themselves ahead of one of Europe’s most important long-term compounders.

A Company Born From Engineering Purpose

Siemens was founded in 1847 by Werner von Siemens, not as a financial construct but as an engineering solution provider. The original mission was simple yet powerful: apply cutting-edge technology to real-world problems.

From the very beginning, Siemens was defined by inventions that shaped entire industries:

• 1847 – Pointer Telegraph: One of the first practical long-distance telegraph systems, enabling fast and reliable communication
• 1866 – Dynamo-Electric Generator: A breakthrough that laid the foundation for modern power generation
• 1891 – Long-Distance AC Power Transmission: First successful transmission of electricity over 176 km (Lauffen–Frankfurt)
• 1924 – Electric Railway Systems: Major advances in electrified transportation
• 1959 – First Industrial PLC Concepts: Early steps toward programmable industrial automation
• 1980s – Industrial Automation & CNC Systems: Establishing leadership in factory automation
• 2007 – TIA (Totally Integrated Automation): Integration of hardware and software across the entire factory lifecycle
• 2010s – Digital Industries Software: Expansion into simulation, PLM, and digital twins

This is not a consumer brand history—it is a continuous chain of engineering milestones. Siemens’ relevance today is not accidental; it is cumulative.

175 Years of Reinvention

Over decades, Siemens evolved alongside industrialization itself: from electrification to power generation, from automation to digital control systems. Yet by the early 2010s, success had become a burden. The group was too broad, too complex, and too difficult to value. It was strong everywhere—but excellent nowhere.

This was the backdrop when Joe Kaeser took over as CEO in 2013.

Joe Kaeser: Architect of Focus

Joe Kaeser understood something critical: scale without focus destroys value. His vision was not to make Siemens smaller, but to make it sharper.

Kaeser fundamentally redefined Siemens’ identity. Instead of a diffuse industrial conglomerate, Siemens would become a focused industrial technology company—centered on automation, digital industries, and intelligent infrastructure.

The “speedboat” strategy was central to this transformation. Independent, focused companies could move faster than a supertanker ever could. The most prominent examples are Siemens Healthineers and Siemens Energy.

These were not divestments driven by weakness. They were strategic acts of value creation. Each entity gained clarity and agility—while Siemens itself became more focused and investable.

Kaeser’s legacy is often misunderstood. He did not dismantle Siemens. He prepared it.

Roland Busch: Turning Vision Into a Platform

When Roland Busch took over, the strategic foundation was already in place. His mission was execution—and system-building.

Busch’s Siemens is about convergence: hardware with software, physical processes with simulation, and engineering with artificial intelligence. To complete this vision, Siemens pursued highly targeted acquisitions, not for scale, but for capability:

• 2016 – Mentor Graphics (~USD 4.5bn) Entry into electronic design automation (EDA), critical for semiconductor and system simulation
• 2019 – Mendix (~EUR 0.6bn) Low-code software platform enabling faster industrial application development
• 2021 – Supplyframe (~USD 700m) Strengthening electronics supply-chain intelligence and design-to-source workflows
• 2022 – Brightly Software (~USD 1.6bn) Asset and facilities management software, expanding smart infrastructure capabilities
• Ongoing bolt-ons in AI, simulation, and industrial software Each acquisition fills a specific gap in the digital industrial stack

The result is not a collection of tools, but a coherent system. Siemens today does not merely sell machines—it sells decision-making capability through digital twins, simulation, and AI-driven optimization.

The Moat: Why Siemens Is Hard to Attack

Siemens’ competitive advantage is not a single product. It is an ecosystem.

Today’s moat is built on an enormous installed base, deep customer relationships, and very high switching costs. Factories, grids, and buildings do not replace their operating systems lightly.

Tomorrow’s moat goes even deeper. Siemens sits at the intersection of real-world industrial data, physics-based simulation models, and AI. This combination is extraordinarily difficult to replicate. Big Tech excels in purely digital environments—but lacks access to physical processes, regulatory constraints, and decades of operational data.

Google and Meta dominate digital attention. Siemens dominates industrial reality.

Competition and Positioning

Siemens competes with ABB, Schneider Electric, and Rockwell Automation. Leadership varies by segment. But in fully integrated industrial systems—combining automation, software, simulation, and lifecycle management—Siemens is among the global top tier.

Crucially, Siemens reinvests aggressively to defend this position—not through marketing, but through engineering depth.

Technology Cycles and the Stock Market

Over the past 20 years, Siemens has repositioned itself repeatedly: automation, digitalization, software, and now AI-driven industry. Markets tend to underestimate how long such transformations take—and then reprice them suddenly once results become visible.

This gap between execution and recognition creates opportunity.

What Siemens Is Building Right Now

Siemens is currently focused on industrial AI, autonomous production systems, smart infrastructure, resilient supply chains, and end-to-end digital twins. The goal is to make complex physical systems more efficient, sustainable, and resilient—at global scale.

Looking Ahead

Next 3–5 Years

• Industrial software and AI monetization becomes clearly visible in margins
• Digital twins become standard across factories, grids, and large buildings
• Siemens is increasingly perceived as a tech platform, not an industrial supplier
• Capital markets start pricing Siemens closer to software-enabled peers

Next 5–10 Years

• Siemens evolves into the operating system of the real world
• AI-driven optimization becomes embedded across global infrastructure
• Switching costs deepen as customers standardize on Siemens platforms
• Siemens emerges as one of Europe’s most valuable and strategically important companies

Will Siemens be better in ten years than today? The odds strongly suggest yes.

Conclusion: Seeing the Transformation Early

Siemens is not an old industrial relic. It is a quietly transforming technology leader—connecting factories, cities, and infrastructure with software, simulation, and AI at world-class levels.

Those who still see bureaucracy may already be late. Those who see the platform being built may still be early.

Valuation

Revenue Growth (p.a.): 8%

(Current growth ~4.6%)

From 2020 to 2025, Siemens achieved an average annual revenue growth of 6.7%. I estimate an additional 1%, driven by the structural shift toward higher-growth software and simulation businesses. This supports a minimum growth assumption of 8% p.a., with upside potential.

Examples of software & simulation growth drivers:

• Digital Twins (Factory, Product & Infrastructure) Siemens enables customers to simulate entire factories, production lines, grids, and buildings before physical deployment. This significantly reduces capex risk, accelerates time-to-market, and locks customers into long-term software subscriptions.
• Industrial Software (PLM, Automation & Low-Code) Solutions such as Siemens’ PLM stack and low-code platforms allow customers to integrate design, engineering, production, and lifecycle management into one digital workflow—driving recurring, high-margin software revenues.
• Simulation + AI in Industrial Processes Siemens increasingly embeds AI into simulation models to optimize throughput, energy efficiency, and predictive maintenance. This shifts Siemens from a hardware supplier to a decision-support and optimization partner.

These offerings grow structurally faster than classic industrial equipment and increasingly dominate incremental revenue growth.

Profit Margin: 12%

(Currently ~9.6%)

Over the past five years, Siemens’ operating margin ranged between 5% and 12%. I assume margins will trend toward the upper end of this range.

Reasons supporting a sustained ~12% margin:

• Software Mix Shift Software, simulation, and digital services carry structurally higher margins than hardware. As their share of revenue increases, group margins naturally expand.
• Operating Leverage Through Installed Base Siemens benefits from a massive installed base in factories, infrastructure, and grids. Incremental software revenues can be scaled with limited additional cost, improving operating leverage.
• Portfolio Focus & Complexity Reduction Since the Kaeser restructuring, Siemens is a more focused organization. Fewer conglomerate inefficiencies, clearer accountability, and disciplined capital allocation support margin stability at the higher end of the historical range.

Future P/E: 23x

(Currently ~25.7x)

Over the last five years, Siemens’ valuation ranged between 10x and 35x earnings, with a median of ~20x. I assume a future P/E multiple modestly above the median at 23x.

This premium is justified by Siemens’ unique competitive positioning:

• Siemens operates at the intersection of physical industrial systems and digital intelligence
• It combines real-world process data with simulation and AI—capabilities that are extremely difficult to replicate
• There are no true substitutes offering the same breadth and depth across industry, infrastructure, and software

As the market increasingly recognizes Siemens as an industrial technology platform rather than a traditional industrial conglomerate, a sustainably higher multiple becomes reasonable.

Interest Rate / Discount Rate: 6.01%

(Assumed constant, in line with current level)

No change.

Fair Value (FV)

Based on the above assumptions, I derive a fair value of €319 per share, implying an estimated share price of €427 in 2031.

At the current price of €250, Siemens trades at approximately 21.6% below fair value.

Internal Rate of Return (IRR)

Based on a five-year holding period at today’s share price:

• IRR (price appreciation only): ~11.3% p.a.
• IRR including dividends: ~13.8% p.a.

This is significantly above my long-term return expectation of 10%, making Siemens attractive on a risk-adjusted basis.

What may look like a disaster when viewed through the share price chart is, in reality, a company in the midst of a deep transformation with strong and improving fundamentals.

Now it’s your turn—feel free to use the comments for your questions and thoughts.

Series: The biggest EU stocks:

#1 – SAP

#2 – Novo Nordisk

#3 – ASML

#4 – LVMH

#5 – Siemens

Coming soon:

#6 – Airbus

#7 – any proposal from your side?

 <<< To see my other narratives, please scroll up and klick on Tokyo (next to my profile picture) >>>

If you enjoy my writing you can find more on the link in my BIO!