Published: Tuesday, November 4, 2025 · 7:53 PM | Updated: Tuesday, November 4, 2025 · 7:53 PM
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Electrical equipment supplier Eaton — whose products are essential to AI data centers — reported a mixed third quarter on Tuesday morning, which was pressuring shares. Adjusted earnings per share for the quarter ended in September rose 8% from the year-ago period to $3.07, a 2-cent beat of the LSEG compiled analyst consensus estimate. Revenue rose 10% to $6.99 billion, but missed the LSEG compiled analyst consensus estimate of $7.08 billion. Organic sales , which exclude a 3% benefit from acquisitions, grew 7%, short of the FactSet estimate for an 8.6% increase. ETN YTD mountain Eaton YTD Shares were down as much as 9% to $352 each at one point Tuesday morning. However, they had a strong bounce off the lows as the post-earnings conference call progressed. We found the call to be very upbeat. Given the amount of mega projects underway and robust data center spend — which we also know from the hyperscalers’ earnings last week — it’s clear that the strong secular tailwinds driving Eaton’s growth are well intact. We, therefore, reiterate our $400 price target and our 2 rating . Should shares revisit the $360 area seen before the call, we would be likely to reassess our rating. Bottom line While the headline results were uneven, there was still a lot to like about Eaton’s quarter. Underlying indicators pointed to more growth ahead. Sales may have missed, but they do mark a third-quarter record as Eaton continues to benefit from the growing demand for electrical equipment across industries. Overall segment profit and profit margin outpaced expectations — both achieving new quarterly records as well. Why we own it Eaton has exposure to several important megatrends like electrification, energy transition, and infrastructure spending. It is also a player in generative AI, where data centers use its power management solutions and electrical equipment to keep up with the heightened demand for more computing power. We see a long runway for growth. Competitors : Parker-Hannifin , DuPont and Honeywell Most recent buy : April 3, 2025 Initiated : Nov. 15, 2023 Looking ahead, the largest of Eaton’s five operating segments, Electrical Americas, saw orders on a rolling 12-month basis accelerate to growth of 7%. That was driven by strong data center demand. In Aerospace, orders advanced 11%. The combined book-to-bill for both segments was 1.1 times — indicating that demand is exceeding supply. Electrical Americas and Aerospace realized backlog growth of 20% and 15%, respectively. “As we continued to deliver robust growth in the data center market, our orders accelerated 70% and our sales were up 40% versus Q3 2024,” Eaton CEO Paulo Ruiz said on the post-earnings call. “This strong demand picture gives us confidence in our ability to deliver sustained growth and value to shareholders.” To get a sense of how impactful this AI data center build is for Eaton, consider this explanation from Ruiz on the call. “If you look at the data before the advent of gen AI, the power used in a typical rack was in the 10 to 15 kilowatt range. … The power in each one of those racks is just skyrocketing. Take Nvidia, for example, its GB200 chip, unveiled in 2024, uses 120 kilowatts per rack. Fast forward a year, to 2025, and Nvidia’s GB300 chip now uses 180 kilowatts per rack. And it’s only increasing from there. Nvidia’s Rubin chip is expected to use 600 kilowatts per rack, and its Feynman chip, 1000 kilowatts per rack. Now, in addition to these higher power chips requiring more and more electrical equipment, which is a great thing for our business, once you get above roughly 50 kilowatts per rack, traditional air cooling is replaced by liquid cooling.” That’s where Eaton’s acquisition of Boyd Corporation’s thermal business comes in. The $9.5 billion deal, announced Monday morning, brings a liquid cooling specialist on board. Boyd Thermal had forecasted sales of $1.7 billion for 2026 — nearly 90% of which is in liquid cooling. On the earnings call, Ruiz said Eaton expects to achieve those Boyd Thermal sales numbers at “adjusted EBITDA margin of 25%.” EBITDA stands for earnings before interest, taxes, depreciation, and amortization. Management estimates the global market for liquid cooling will grow roughly 2.5 times by 2028 to $8 billion to $9 billion. By 2030, the team thinks the market could expand to $15 billion to $18 billion. Ruiz also said, “On the dollars per megawatt, our range was between $1.2 million to $2.4 million per megawatt, being the lower-end cloud and being the higher-end AI loads for the portfolio we have today. And with the acquisition of Boyd, we’re going to add another $500,000, so we’ll be close to $3 million per megawatt at the high end.” Guidance Management reaffirmed its full-year outlook: Organic growth between 8.5% and 9.5%, in line with the FactSet consensus estimate, at the midpoint Segment margin between 24.1% and 24.5%, about in line with estimates, at the midpoint. Adjusted EPS in the range of $11.97 to $12.17, above the $12.04 consensus estimate, according to LSEG, at the midpoint. As for the current (fourth) quarter, management forecasted: Organic growth in the range of 10% to 12%, in line with the FactSet estimates, at the midpoint Segment margins between 24.2% to 24.6% Adjusted EPS in the range of $3.23 to $3.43, a miss versus the $3.38 LSEG consensus estimate, at the midpoint. Looking at 2026, management provided some initial assumptions relating to end-market dynamics: Data centers and distributed IT, and electric vehicle markets stand to realize “strong/double-digit growth” Utility, commercial aerospace, and defense aerospace markets are expected to realize “solid growth” Commercial and institutional, and machinery/mechanical original equipment manufacturer (MOEM) markets are expected to realize “modest growth” Industrial facilities, internal combustion engine (ICE) light vehicles, commercial vehicles, and residential end markets are forecast to see “slight growth” (Jim Cramer’s Charitable Trust is long ETN. See here for a full list of the stocks.) 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