It's hard to believe one of the biggest bottlenecks in the AI race isn't chip-related. Power transformers are now a rare commodity. Major manufacturers, including Eaton (ETN -3.09%), have backlogs stretching multiple years. Eaton makes the necessary electrical equipment to keep data centers up and running.
The demand far outpacing transformer supply is great news for Eaton and its investors. Orders are far outrunning the ability to ship. In the second quarter of this year, Eaton's sales reached a record $8.5 billion, a 21% jump from the year prior. Adjusted earnings per share were $3.15, also a record for Eaton. Revenue attributed to data centers grew approximately 65%.
Image source: The Motley Fool.
Eaton also recently acquired the liquid-cooling business Boyd Thermal. Cooling is a hot topic among data centers, and this gives Eaton an additional revenue stream.
The strong quarter prompted management to raise its full-year adjusted EPS guidance to $13.40-$13.60. Eaton is expected to focus more on electrical infrastructure going forward. The company will accomplish this by separating the Mobility group and combining it with Dana Incorporated (DAN -1.44%) in a Reverse Morris Trust, where Eaton shareholders will retain 50.1% of the company. This move, expected to close in early 2027, will allow Eaton to focus more on its higher-growth, higher-margin Electrical and Aerospace businesses.
NYSE: ETN
Key Data Points
The company's electrical global segment backlog grew 103% year over year in the second quarter. The aerospace segment's backlog grew 28% in the same time frame.
The stock isn't cheap, trading at more than $440 per share as of this writing and up nearly 40% since the start of 2026. And with a trailing P/E ratio above 40, investors may think Eaton's stock is overpriced. I would argue against this simply because so few industrial companies have the same level of revenue visibility as Eaton.
