Eaton’s stock sat out the AI boom this year. What can spark a rally in 2026
After a poor performance in 2025, better things await the Eaton Club. Shares are on track for a modest decline this year, significantly outperforming the S&P 500’s industrial sector, which is up more than 19%. The electrical equipment supplier failed to impress Wall Street’s high expectations. President Donald Trump’s tariffs also didn’t help sentiment improve. Still, Eaton is one of five stocks poised for a 2026 rally in our 35-name portfolio. Year-to-date performance: down nearly 3% Forward price-to-earnings multiple: 23.3 versus the five-year average of 23.5, according to FactSet data. Our rating: equivalent 2 ratings per share Our price target: $400 per share ETN YTD Mount Eaton (ETN) year-to-date performance After consecutive years of riding the AI wave to new highs, Eaton’s shares are behind in 2025. But continued momentum in the data center business suggests the stock should be back in the mix in 2026. In some ways, Eaton has become a victim of its own success in 2025: As in years past when the AI boom was in its early stages, it failed to meet Wall Street’s high bar. Eaton’s earnings per share beat expectations in all three quarters this year, with average earnings just 0.6% above the FactSet consensus. This rate was 2.9% in 2024 and 4.7% in 2023. As a result, investors’ expectations in 2026 need to be more realistic after this year’s moderate performance. If heavy AI spending continues (for example, UBS predicts it will reach $500 billion by 2026, up 33% from the previous year), Eaton needs to capture its fair share of those dollars. Big tech companies known as hyperscalers, including Meta Platforms, Microsoft and Amazon, are among the biggest spenders. And they show no signs of slowing down as they seek more computing power for productive AI services. Eaton’s Electrical Americas division, which houses the sale of switchgear, transformers, backup power systems and other electrical equipment needed to run data centers, is where AI spending is flowing. This segment accounted for roughly 46% of Eaton’s revenue in the first three quarters of 2025, up from 37% in 2021, reflecting its growing importance to the company. In the third quarter reported in November, Eaton’s data center orders were up 70% year over year, and revenue from that business was up 40% year over year; This is clear evidence that things are heating up. Eaton executives said there are more positive developments ahead for its largest business unit. “This strong demand outlook gives us confidence in our ability to deliver sustainable growth and value to our shareholders,” CEO Paulo Ruiz said on the November earnings call. The company is smartly positioning itself to focus more on the data center trend in 2026. In November, Eaton announced its $9.5 billion acquisition of liquid cooling specialist Boyd Thermal, which added a portfolio of products that control excess heat in energy-intensive operations such as AI computing. Boyd Thermal estimates 2026 sales will be $1.7 billion, with approximately 80% attributable to the data center segment. With Boyd, Eaton will now help AI servers get the power they need to run and prevent overheating that limits their performance. Eaton predicts that the global liquid cooling market will grow from approximately $3 billion in 2018 to roughly $8 billion to $9 billion by 2028. Eaton executives predict the market could expand to $15 billion to $18 billion by 2030. “Stocks are going to be up on this because it gives them an even deeper footprint in the data center,” Jim Cramer previously said of the deal. Beyond the curse of high expectations, other headwinds weighing on Eaton shares, including capacity expansion, appear to be abating. Eaton has since tried to solve these problems by investing more to address the shortage of transformers, switchgear and other equipment. “We continue to invest, shorten delivery times and continue to grow our backlog,” Ruiz said at a UBS industry conference on Dec. 2. Other headwinds in 2025 included Trump’s tariffs, which increased Eaton’s costs. These pressures also need to decrease. Wall Street analysts seem to agree with us. Deutsche Bank identified Eaton with a buy rating as its top 2026 pick in the sector earlier this month. “Over the last three years, our recommendations have been dominated by those with the most exposure to the data center market, given the strong growth driven by AI investments,” the analysts wrote. “While we understand the market’s concerns about a potential AI bubble, fundamentals remain solid, supporting accelerating order growth and record backlogs. This gives us confidence in our view that the consensus continues to materially underestimate the earnings power of AI.” [Eaton and other industrials] (Jim Cramer’s Charitable Trust is long ETN, META, AMZN, MSFT. See here for a full list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim talked about a stock on CNBC TV, THE ABOVE INVESTMENT CLUB INFORMATION, INCLUDING THE ABOVE DISCLAIMERS, NO OBLIGATION OR DUTY TO SATISFY YOU EXISTS OR SHALL BE CREATED BY RECEPTION OF ANY INFORMATION PROVIDED. NO PARTICULAR RESULT OR PROFIT CAN BE GUARANTEED IN CONNECTION WITH THE INVESTMENT CLUB.
