Inside a 28-story testing tower erected in the midst of the suburban city of Bristol, Connecticut, Otis engineers run elevator components via mud chambers, humidity cells and saltwater fog machines.
“[Elevators] are presupposed to work within the excessive situations of the world. Whether or not it is the desert or the Arctic,” stated Haran Vela, senior vp of engineering for Otis. “We attempt to simulate all of these situations on this facility in order that we all know that our designs will work in the true surroundings.”
Otis is the most important elevator firm on the planet, working in 200-plus international locations. In 2025, the corporate generated greater than $14 billion in income — up roughly 13% because it was spun off from United Applied sciences in 2020.
Otis’ funding case hinges on the premise of long-term, steady progress, particularly in an more and more unstable market.
However the firm’s inventory is down about 15% year-to-date, underperforming each the economic sector and the broader market.
“There’s positively a wave of cash that is been following alongside or chasing … the [artificial intelligence] performs,” stated Melius Analysis world equipment analyst Robert Wertheimer.
On the similar time, Otis’ personal enterprise has been faltering.
“Otis, as a service-led enterprise, had a setback in service,” Wertheimer stated. “And so they’re fixing it. It will get fastened. However that was type of a stumble on the proper time for circulate of funds to go within the different course.”
Otis vs. Industrial sector
The service engine
Constructing new elevators is not an inherently profitable enterprise. In 2025, Otis’ working revenue margin on new gear was simply 4.8%.
The true revenue driver of the enterprise is available in servicing these elevators as soon as they’re put in. Initially, that entails issues like upkeep and repairs. Then after about 20 years, the elevator must be modernized, which entails partially or totally changing its components.
“That is the engine that enables us to generate over 90% of our earnings,” stated Otis CEO and Chair Judy Marks.
Otis presently companies about 2.5 million elevators worldwide, up from over 2 million models in 2020.
The corporate has incrementally grown its revenue margins on service over the previous couple of years, reaching 25.5% by the tip of 2025. However service margins fell by 250 foundation factors within the first quarter of 2026.
That margin decline is a results of a broader subject the corporate has been working via because the begin of final 12 months. Otis noticed its retention charge, which means the purchasers that renew their service contracts, dropping because it entered 2025.
“They began calling out value actions they have been going to do to repair it, which is solely hiring extra individuals, focusing extra on upkeep; much less revenue-producing however extra customer-pleasing” stated Wertheimer. “It has been a problem that has coincided with loads of noise round tariffs and a few China applications to stimulate progress. … There’s simply been a bit bit extra uncertainty round what is often a really steady earnings stream.”
Getting again on observe
The corporate stated it’s making $50 million in incremental investments to its service enterprise all through 2026.
In Otis’ most up-to-date quarter, service gross sales have been up 11% 12 months over 12 months, however in its earnings name, Marks stated the corporate had not but seen a big enchancment in retention. The corporate reduce its revenue steerage for the 12 months.
Wertheimer wrote in a July analyst word that these investments within the service enterprise ought to result in fewer outages for purchasers, which might, in flip, enhance retention. As he places it: “Renewals are considerably computerized if nobody is sad.”
However Otis must show its tens of million of {dollars} in investments can repay. It is banking on long-term predictability to get Wall Avenue again on board.
“Urbanization, digitalization, getting older individuals who want mobility and infrastructure modernization shouldn’t be solely going to be engaging within the close to time period, the following few years, versus all the info middle enlargement that is taking place,” Marks stated, “however this has decadelong runs in it.”
Elevator shaft the place security breaks are examined.
CNBC
Aggressive panorama
Information of an trade shake-up might additionally quickly affect the elevator market.
Finland’s Kone agreed to purchase Germany’s TK Elevator in a virtually $35 billion deal introduced in April.
Wolfe Analysis senior analyst Nigel Coe famous that merger might doubtlessly profit Otis, as there can be simply three as a substitute of 4 main gamers bidding for elevator contracts.
However the merger might face regulatory hurdles. The second-largest elevator firm, Schindler, has stated it could problem the deal over antitrust issues.
When requested about how she views the present aggressive panorama, Marks stated Otis goes to depart the matter to regulators and let clients make their selections.
