Nvidia (NVDA +0.34%) made big news last week when it introduced its new line of Rubin chips at the Consumer Electronics Show (CES). The new Rubin platform is designed primarily to handle workloads from AI data centers.
As the company explains it, the new Rubin line of chips are built to treat the AI data center as the "unit of compute," not just a single GPU server. The platform includes six chips that are built to work as one, with GPUs, CPUs, and other components co-designed to share data faster.
Image source: Nvidia
The market initially cheered the development, as Nvidia stock shot up on the promise of this new approach to more efficiency handle AI workloads.
At the same time, shares of Amphenol (APH +3.10%) plummeted on the news, as it serves a portion of the AI data center architecture that investors viewed as jeopardized by the new Nvidia chips. But is that really the case or might new opportunities for Amphenol emerge, making this an attractive pick-and-shovel play for investors?
NYSE: APH
Key Data Points
Cables out, connectors in?
Amphenol makes products that "enable the electronics revolution," including cables, connectors, antennas, sensors, and circuits. It serves a variety of industries including automotive, aerospace, mobile, broadband, defense, information technology, and data centers.
Amphenol stock fell some 5% in the days following the Nvidia announcement, as investors likely saw the new Rubin platform as a negative for Amphenol because the chip platforms compute tray doesn't require cables to connect to other networking ports.
However, at the end of last week, sentiment began to shift after Wall Street analysts at Evercore ISI issued a research note saying the new Rubin chips could actually benefit Amphenol.
As Amphenol is also a leading provider of connectors that are used for chips, these connectors could be in even higher demand with the new Rubin chip platform. In fact, Evercore analysts said the Rubin chips could require 20% to 40% more content in the form of connectors than the Blackwell chips required in Amphenol cables.
Cables are still used within other parts of the AI data center infrastructure, and for other chips and connection functions, just not within the compute tray of the Rubin chips.
Amphenol's stock price rose on Friday, likely fueled in part by the Evercore (EVR +1.64%) endorsement and investors buying the dip. It then climbed another 4% on Monday following upgrades by Barclays, Citigroup, and Fox Advisors, according to the Fly.
In addition, Amphenol closed on its acquisition of CommScope's (COMM +2.14%) Connectivity and Cable Solutions (CCS) business, which is expected to bring $4.1 billion in revenue this fiscal year and be $0.15 accretive to earnings.
Amphenol has returned 106% over the past year
Amphenol is not a household name like Nvidia, but it has quietly put up ridiculously good returns over the past decade. It has actually beaten Nvidia over the past year, returning 106% to Nvidia's 36%.
Over the past five years, Amphenol has posted an average annualized return of 34%, and its 10-year annualized return is 28%, far outpacing the S&P 500. So it is not just an AI data center fueled phenomenon but a long-term grower.
Amphenol has three major business lines, with Communication Solutions the largest and biggest grower, accounting for 53% of revenue. This includes data centers, mobile and broadband networks and should be the hub of future growth. But its other segments are growing too, including its Harsh Environment Solutions group, which serves military, industrial, and other industries that require rugged, outdoor connections; and Interconnection and Sensor Systems, which serve automotive, aerospace, transportation with sensors and connectors.
Looking ahead, Amphenol stock is a bit expensive trading at 48 times earnings and 35 times forward earnings, but its earnings power is massive as a key player in the AI revolution and one of the largest in its space, by market share. That's clear by the massive growth it has experienced, with revenue rising 53% in the most recent quarter and earnings per share surging 102% higher, year-over-year.
Its record high operating margin has allowed it to generate $1.2 billion in free cash flow, which in turn has paved the way for growth through acquisition, with the most recent buy being the highly accretive CCS deal, which just closed. For the full fiscal year, Amphenol is guiding for roughly 50% year-over-year sales growth and about 73% earnings growth.
The CCS deal, along with the potential increase in business from the Rubin chips should translate to continued gains in 2026. Investors were certainly right to buy the dip after the initial drop last week for Amphenol, but even with the stock price near a 52-week high, it still has room to run.
