Should You Buy Eaton While It's Below $360?

Megatrends are emerging in energy and artificial intelligence (AI), with hyperscalers building data centers at a rapid rate. These data centers, which are power-hungry and run hot, create a need for electrical and cooling solutions, which should bode well for Eaton (NYSE: ETN).

If you're not familiar, Eaton provides important electrical solutions, and the robust demand for data centers has it well-positioned to win from this buildout over the next several years.

With the stock down 13% from its 52-week high and priced below $360 per share, is today a good time to buy? Let's look at the long-term opportunity to find out.

Eaton has an extensive power management business

Eaton provides power management products and services globally, with a particular focus on electrical products and systems. Some of its core offerings include circuit breakers, switchgear, transformers, power distribution units, and industrial control components. Its hardware helps manage electricity that flows through commercial factories, utilities, and data centers, maintaining uptime while reducing electrical waste.

It also serves the aerospace industry, providing hydraulics, fuel systems, and other solutions used in commercial and defense aircraft. Finally, it provides design and manufacturing services to automakers, supplying powertrain systems to increase fuel efficiency and components for electric vehicles to improve efficiency.

Data centers will drive growth

CEO Paulo Ruiz noted that the company continues to see strong demand, with order acceleration and sustained backlog growth. This was driven by robust demand in its Electrical Americas and Aerospace segments. Its backlog in its Electrical Americas segment reached a record $12 billion in the third quarter, which is up 20% from last year.

One key growth area for Eaton is in data centers. Demand from data center end markets has been a key driver of growth for its electrical segments. According to the company, orders in the data center vertical have grown 70% in the third quarter this year compared to last.

Image source: Getty Images.

Looking forward, the company is optimistic that growth will accelerate into 2026. It sees growth driven by data centers, distributed IT, and electric vehicle markets. To capitalize on the growth of data centers and related components, Eaton made a splash with a $9.5 billion acquisition. The company agreed to acquire Boyd's thermal business from Goldman Sachs Asset Management for $9.5 billion.

Boyd Thermal provides thermal components, systems, and ruggedized solutions for data center and aerospace markets, with a forecasted $1.7 billion in sales next year, representing 70% year-over-year growth.

Eaton already provides solutions for major power and cooling systems from the chip to the grid. By acquiring Boyd Thermal, the company aims to accelerate the deployment of future data centers by combining its solutions with Boyd's cooling architecture. Boyd has a strong position as a "cooling expert," and its engineers work closely with chip manufacturers (like Nvidia and AMD) and hyperscalers, enabling them to design systems for chips two or three generations ahead of current offerings.

Eaton is also investing in its domestic manufacturing capabilities as its markets experience a "growth super cycle." To meet demand and fulfill the massive backlog, its Electrical Americas segment is simultaneously expanding 12 facilities as it accelerates investments and increases production capacity.

Is Eaton a buy?

Eaton is experiencing rapid growth, with its backlog steadily increasing, indicating strong demand for its electrical and power grid solutions. The company should benefit from the ongoing buildout of artificial intelligence and data centers, as well as the increasing demand for energy and solutions in this area. Analysts covering the company expect it to grow by double-digits over the next several years.

Given its key role in power and electric grid solutions, Eaton looks like a solid pick-and-shovel play for investors looking to capitalize on the AI boom.

Courtney Carlsen has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Goldman Sachs Group, and Nvidia. The Motley Fool has a disclosure policy.