Eaton proved to be something of an artificial intelligence dark horse in 2024 — riding the AI investment wave with best-in-class power management solutions. A big backlog of projects should keep the company busy for the foreseeable future. Year-to-date performance: up 40.2% Forward price-to-earnings multiple: 28.0 versus a five-year average of 22.3 Our rating: Hold-equivalent 2 Our price target: $375 a share ETN YTD mountain Eaton YTD ’24 look back Power management lends itself to several secular growth trends of the moment. But it was the need for more AI-configured data centers, which take much more energy to run and thus need specialized electric components to operate, that drove this year’s outperformance at Eaton. Beyond data centers, hundreds of billions of dollars are being invested in energy transition technology, vehicle electrification, digitalization, infrastructure spending, and re-industrialization. Eaton can address it all, which is why the company has been realizing a roughly 40% win rate when it comes to mega-projects targeting these trends. ’25 look ahead That dynamic not only drove outperformance in 2024 but also sets the table for next year, thanks to a massive backlog of so-called mega-projects valued at $1 billion or more. Last we heard from the team, they said they were in active negotiations for another $3 billion worth of orders. Jim Cramer recently named Eaton as one of his 12 core holdings heading into 2025. While the build-out of data centers certainly won’t be in a straight line as companies look to balance capital expenditures with profits, we expect Eaton to continue to profit from the need for more computing power. Spending on the data centers may fluctuate quarter to quarter but as we have heard from tech CEOs all year long, the world needs more accelerated data centers, beyond what can be retrofitted. Given the potential of generative AI, the consensus among tech leaders is the risk of underdevelopment and falling behind is greater than overdevelopment and pushing spending forward. The main risk for 2025 would be an economic slowdown that forces building, vehicle, or aerospace customers to slow orders, or data center customers to pump the breaks on their buildouts. Such moves could kick off a so-called digestion phase as they look to harvest profits on prior investments. That would certainly weigh on the key electrical segments that drive most of the top line. (Jim Cramer’s Charitable Trust is long ETN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will 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 has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Eaton Corporation signage at the NYSE
Source: NYSE
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