This Earnings Season Confirmed the AI Power Bottleneck Is Real. Here Are the Industrial Winners Hiding in Plain Sight.
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This Earnings Season Confirmed the AI Power Bottleneck Is Real. Here Are the Industrial Winners Hiding in Plain Sight.
011 mins
Artificial intelligence (AI) has been the main driver of the stock market this year, with investors piling into mega-cap technology companies tied to AI, data centers, cloud computing, and semiconductors.
This trend overlooks a key sector that is benefiting from AI and the growth of data centers — industrials.
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They’re considered cyclical and traditional stalwarts, maybe a little boring, but they are key enablers of AI growth. On top of that, many industrial stocks still have attractive valuations.
That’s particularly true of the picks-and-shovels companies supplying grid equipment, HVAC/cooling, switchgear, and construction for AI growth. Many of these companies are also aided by trends in global grid modernizations, reshoring, and energy transition. Here are three industrial winners hiding in plain sight: Eaton Corporation (NYSE: ETN), Vertiv Holdings (NYSE: VRT) , and Cummins (NYSE: CMI).
Image source: Getty Images.
Eaton helps connect data centers to the electrical grid
Eaton is an Ireland-based company that makes products for the data center, utility, industrial, commercial and institutional, machine building, residential, aerospace, and mobility markets. Its products connect data centers directly to the electrical grid.
On Aug. 17, Eaton announced a partnership with Trane (NYSE: TT) to develop an integrated design based on Nvidia‘s (NASDAQ: NVDA) DSX AI factory reference design. The collaboration will develop higher-power designs tailored for AI data centers.
In the second quarter, its sales rose 21% year over year to $8.53 billion. The company’s order backlog grew by 43% in the electrical sector and by 23% in its aerospace segment. Adjusted earnings per share (EPS) were a record $3.15, up 12% over the same period a year ago.
The company is forecasting full-year organic revenue growth between 11% and 13% and adjusted EPS between $13.40 and $13.60, up from $12.07 in 2025. Despite a 28% rise this year in its share price, the stock is still trading at about 30 times forward earnings, a bargain for an AI stock.
Eaton completed two major acquisitions this year. It bought Boyd Thermal for $9.55 billion, adding a company whose liquid cooling solutions and thermal management are complementary to Eaton’s electrical and power work for data centers. It also paid $1.53 billion for Ultra PCS Limited, which provides control systems, specialized electronics, and power management for aerospace applications.
Those moves have temporarily lowered Eaton’s earnings under generally accepted accounting principles (GAAP) and increased its long-term debt by 112% to $18.5 billion. However, those concerns are somewhat mitigated by the planned spinoff of its mobility business unit, which provides Eaton with $1.1 billion to pay down debt and allows it to focus on its more profitable electrical and aerospace sectors. Eaton’s dividend, which has a yield of about 1.1% and has risen by 54% during the past decade, is well-covered with a payout ratio of about 52%.
Vertiv is a cool below-the-radar choice
High-powered graphics processing units (GPUs), such as AI chips, generate extreme heat. This makes traditional air conditioning insufficient, thereby driving demand for specialized liquid cooling and industrial HVAC equipment. Vertiv, based in Westerville, Ohio, specializes in data center power management and liquid cooling solutions.
The company is starting to draw attention, and its shares are up more than 60% this year. Vertiv is a direct market leader in liquid-to-liquid and direct-to-chip liquid cooling architectures, making its technology an essential component for hyperscalers such as Nvidia, Microsoft (NASDAQ: MSFT), and Amazon (NASDAQ: AMZN) as they deploy high-density AI clusters.
Vertiv reported Q2revenue of $3.27 billion, up 24% year over year. EPS rose 53% from a year earlier to $1.27, and adjusted diluted EPS grew 60% to $1.52. Management also raised its full-year net sales projection to $14 billion, up 31% at the midpoint from 2025, and said full-year EPS would be $5.82 to $5.92, up 72% at the midpoint over 2025.
Cummins keeps the lights on for data centers
Cummins, based in Columbus, Indiana, provides heavy standby power systems and generation equipment for large data centers, using advanced diesel, natural gas, hybrid, electric, and fuel cell technologies. Its shares have only risen 13% this year despite strong revenue and earnings growth.
In Q2, it reported revenue of $9.5 billion, up 9.4% year over year, and EPS of $6.73, up 4.6%. The company’s stock is trading for less than 30 times trailing earnings and for less than 20 times forward earnings. It is predicting full-year sales to climb between 10% and 13%.
It also has the best dividend yield among the three stocks, at 1.5%, based on its current share price. The company has raised its dividend for 17 consecutive years, including a 9.8% increase this year to $2 a share.
AI growth without the volatility
Although mega-cap tech and semiconductor stocks have dominated headlines during the market’s AI rally, picks-and-shovels AI stocks are leveraging physical constraints into substantial revenue growth while offering investors lower valuation multiples and steady dividend returns.
Eaton and Vertiv lead the charge inside and outside the modern server farm. Eaton has positioned itself as an essential bridge between data centers and the electrical grid. Meanwhile, Vertiv offers exposure to high-density thermal management, where traditional air conditioning fails. Cummins provides the crucial emergency power and grid stabilization necessary to keep mission-critical facilities online. All three stocks illustrate how value-oriented investors can capture structural AI tailwinds without overpaying for hyper-growth technology plays.
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James Halley has positions in Microsoft and Nvidia. The Motley Fool has positions in and recommends Amazon, Cummins, Eaton Plc, Microsoft, Nvidia, Trane Technologies Plc, and Vertiv. The Motley Fool has a disclosure policy.
