Eaton Faces Transformer Shortage and Strong Demand in Data Center Sector
Power transformers are becoming a critical bottleneck for data centers due to high demand, with major manufacturers like Eaton experiencing multi-year backlogs. In Q2 of this year, Eaton reported record sales of $8.5 billion—a 21% increase from the previous year—and adjusted earnings per share (EPS) reached $3.15. The company's revenue attributed specifically to data centers grew by approximately 65%. Additionally, Eaton acquired Boyd Thermal’s liquid-cooling business and raised its full-year EPS guidance to between $13.40 and $13.60. Eaton is restructuring through a Reverse Morris Trust with Dana Incorporated in early 2027, allowing it to focus on higher-growth Electrical and Aerospace segments by separating the Mobility group. The company's electrical segment backlog increased by 103% year-over-year while aerospace grew by 28%. Despite strong performance metrics, Eaton’s stock is trading at a high price of over $440 per share with a trailing P/E ratio above 40. The industrial sector is benefiting from the surge in demand for electrical infrastructure driven largely by AI and data center expansion. However, investors may view the current valuation as elevated due to its premium pricing.
Topics: AI Industry Bottlenecks Data Centers Electrical Infrastructure M&A Activity