Eaton: The Infrastructure Backbone Powering AI's Explosive Growth

While countless investors chase semiconductor winners in the artificial intelligence boom, a more compelling opportunity lies in the companies building the actual infrastructure that supports it. Eaton, a diversified electrical manufacturer, represents exactly this kind of play — a foundational enabler positioned to capitalize on massive spending by hyperscalers.

The Half-Trillion Dollar AI Infrastructure Wave

The scale of investment flowing into AI data centers is staggering. Major tech giants including Microsoft, Meta Platforms, and Amazon have committed to unprecedented capital expenditures to build out AI infrastructure. According to Goldman Sachs, companies are expected to channel roughly $500 billion into data center infrastructure this year alone. This isn’t a passing trend — it’s a multi-year buildout that will reshape the technology landscape.

This massive spending creates a specific opportunity for companies that serve as critical components in the infrastructure supply chain. Rather than betting on a single AI company or chip manufacturer, investors can focus on the foundational providers whose products are essential to making these facilities function at scale.

Why Liquid Cooling Is the Real Constraint

Understanding Eaton’s opportunity requires grasping a fundamental technical challenge: modern AI systems generate enormous amounts of heat. Traditional server racks historically consumed between 10 and 15 kilowatts of power, a figure that was manageable with conventional cooling solutions. Current AI-optimized racks, however, demand 80 to 100 kilowatts — a roughly 6-to-10 fold increase in thermal output.

This shift creates an urgent need for advanced cooling systems. Eaton recognized this trend and made a strategic acquisition to position itself at the center of the solution. The company announced plans to acquire Boyd Thermal, a leading player in liquid-cooling technology, expected to close in the second quarter of 2026. This move gives Eaton direct exposure to the liquid-cooling segment, which industry analysts project will grow at a 35% annual rate through 2028.

Record-Breaking Demand and Order Growth

The company isn’t speculating about future opportunities — Eaton is already experiencing explosive order growth. In the most recent quarter, data center orders surged 70% year over year, while actual data center sales climbed 40%. The company’s order backlog, a key indicator of future revenue, has grown 20% year over year and now stands at $12 billion for its Electrical America segment.

This backlog is particularly significant because it provides visibility into future earnings. Eaton’s management also noted a wave of “megaprojects” — contracts valued at over $1 billion each — with data centers accounting for nearly half of the $239 billion in megaproject announcements during the recent quarter.

The Foundation Enabler Strategy

Eaton’s business model aligns with what investors call a “pick-and-shovel” strategy — providing the essential tools and infrastructure that enable a broader trend. Rather than building AI chips or competing directly with hyperscalers, Eaton supplies the electrical components, power management systems, and thermal solutions that make these facilities possible.

The company’s product portfolio includes switchgears, transformers, power distribution units, uninterruptible power supplies, and energy storage solutions. Every major data center relies on these components to operate safely and efficiently. As hyperscalers expand their infrastructure footprint, they can’t opt out of purchasing from suppliers like Eaton — these inputs are non-negotiable requirements.

Considering the Risk and Reward

Eaton currently trades at 26.4 times this year’s projected earnings, a valuation that reflects the market’s confidence in the infrastructure growth narrative. The company does face one key vulnerability: if hyperscalers significantly reduce their capital expenditure plans, future demand could contract and negatively impact earnings growth.

However, there are no visible signs of a pullback in spending momentum. The AI data center buildout is expected to unfold over multiple years, and the technical requirements for cooling and power management will only intensify as AI models grow larger and more complex.

For investors seeking exposure to the AI infrastructure boom without the volatility of semiconductor or AI software stocks, Eaton offers a more stable way to participate in what’s shaping up to be a generational investment cycle. The company has transformed itself from a traditional industrial manufacturer into a direct beneficiary of one of the largest capital allocation cycles in tech history.