Better things are ahead for Club name Eaton after its lackluster 2025 performance. Shares are on track for a modest decline this year, dramatically trailing the S & P 500’s industrials sector , which has advanced more than 19%. The electrical equipment supplier has failed to impress Wall Street’s lofty expectations. President Donald Trump’s tariffs haven’t helped improve sentiment either. Still, Eaton is one of five stocks in our 35-name portfolio poised for a 2026 rally. Year-to-date performance: down roughly 3% Forward price-to-earnings multiple: 23.3 versus a five-year average of 23.5, according to FactSet data. Our rating: hold-equivalent 2 rating Our price target: $400 a share ETN YTD mountain Eaton (ETN) year to date performance After back-to-back years of riding the AI wave to new heights, Eaton’s stock was left behind in 2025. However, the continued momentum in its data center business suggests the stock should be back in the mix in 2026. In some ways, Eaton was a victim of its own success in 2025: It failed to meet Wall Street’s high bar for beat-and-raise quarters, as it had in years past when the AI boom was in its early stages. While Eaton’s earnings per share have surpassed expectations in all three quarters this year, the average beat is just 0.6% above the FactSet consensus, compared with 2.9% in 2024 and 4.7% in 2023. The upshot is that investors’ expectations in 2026 should be more realistic after this year’s mild performance. If the hefty artificial intelligence spending continues — for example, UBS projects a 33% year-over-year increase to $500 billion in 2026 — then Eaton should get its fair share of those dollars. The large tech companies known as the hyperscalers, including Meta Platforms , Microsoft , and Amazon , are among the biggest spenders. And they’ve shown no signs of slowing as they seek more computing power for their generative AI services. Eaton’s Electrical Americas division — home to sales of switchgear, transformers, backup power systems, and other electrical equipment needed to run data centers — is where the AI spending flows. That division has accounted for roughly 46% of Eaton’s revenue over 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% annually — clear evidence that it’s on fire. Eaton executives said there’s more upside ahead for its largest business unit. On its November earnings call, CEO Paulo Ruiz said, “This strong demand picture gives us confidence in our ability to deliver sustained growth and value to shareholders.” The company is wisely positioning itself to further focus on the data center trend in 2026. In November, Eaton announced a $9.5 billion acquisition of liquid-cooling specialist Boyd Thermal, which adds a portfolio of products that control excess heat in energy-intensive operations such as AI computing. Boyd Thermal forecasts 2026 sales of $1.7 billion, with about 80% attributable to the data center segment. With Boyd, Eaton will now help AI servers receive the power they need to operate and prevent overheating, which limits their performance. Eaton forecasts that the global liquid cooling market will grow to roughly $8 billion to $9 billion by 2028, up from approximately $ 3 billion in 2018. By 2030, Eaton executives predict the market could expand between $15 billion and $18 billion. “The stock is going to go up on this because this gives them an even deeper footprint within the data center,” Jim Cramer previously said of the deal. Beyond the curse of high expectations, other headwinds that weighed on Eaton’s shares appear to be subsiding, including capacity expansion. Eaton has since addressed these issues by investing more to meet the shortage of transformers, switchgear, and other equipment. “We keep investing, we reduce lead times, and we continue to grow backlogs,” Ruiz said at a UBS industrials conference on Dec. 2. Other headwinds in 2025 included Trump’s tariffs, which raised costs for Eaton. Those pressures should ease, too. Wall Street analysts appear to agree with us. Deutsche Bank named buy-rated Eaton its top pick for 2026 within the sector earlier this month. “For the past three years, our recommendations have been dominated by those most exposed to the data center market, given robust growth propelled by AI investment,” the analysts wrote. “While we understand the market’s concerns about a potential AI bubble, fundamentals remain robust, underpinning accelerating order growth and record backlogs. This gives us conviction in our view that consensus continues to materially underestimate the earnings power of [Eaton and other industrials] with significant data center revenue.” (Jim Cramer’s Charitable Trust is long ETN, META, AMZN, MSFT. See here for a complete 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.
www.cnbc.com
#Eatons #stock #sat #boom #year #spark #rally
