Eaton on Friday delivered mixed fourth-quarter results Friday, but the electrical components and power systems company made clear that its fast-growing data center business isn’t slowing down despite the emergence of Chinese startup DeepSeek and its more efficient AI models. Revenue in the three months ended Dec. 31 increased 4.6% year over year, to $6.24 billion, missing the $6.33 billion consensus, according to estimates compiled by LSEG. Sales rose 6% on an organic basis, which strips out the impact of currency fluctuations and acquisitions and divestitures. Eaton also said its topline experienced a roughly $80 million headwind tied to Hurricane Helene and aerospace labor strikes. Adjusted earnings per share (EPS) advanced 11% year over year, to $2.83, better than the $2.81 consensus, LSEG data showed. Segment margin , similar to an adjusted operating income margin, expanded 192 basis points, to a quarterly record of 24.7%, ahead of the 24.1% estimate, according to FactSet. Shares were higher by roughly 0.75% in afternoon trading, shaking off earlier losses in the session. Eaton 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 : Jan. 28, 2025 Initiated : Nov. 15, 2023 Bottom line Eaton’s numbers were not perfect, but the company did enough to validate our decision Tuesday to step into the DeepSeek-driven sell-off and add to our position . With its results in hand, we’re reiterating our buy-equivalent 1 rating and price target of $375 a share. While shares had found their footing recent days , Eaton investors still really only had one topic on their minds coming into Friday’s print: What does the release of DeepSeek’s lower-cost, power-efficient AI model mean for data center infrastructure demand? Sure, DeepSeek may eventually accelerate AI adoption because AI is now cheaper to run. But would DeepSeek’s efficiency innovations cause Eaton’s customers put off orders in the short run, waiting until AI demand increases to absorb the now-excess compute capacity that exists? The answer is that this doesn’t appear to be a cause for concern at Eaton. The lead time for the company’s orders means that they can’t stop working even for a second if they’re going to fulfill those orders and get through the massive backlog at some point this decade. CEO Craig Arnold addressed this head-on during on the call, and it’s worth including his remarks at length: “Given the heightened discussions on data centers this week, I wanted to take a moment to highlight our data center business and why we have so much confidence in our outlook for continued growth. … As you can see from the data, the rate…
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