Why Infrastructure Powerhouses Like Eaton Are Outpacing AI Stocks This Year

While investors have been fixated on AI stocks themselves, they’re overlooking a more compelling opportunity emerging from the artificial intelligence boom. Eaton Plc stands at the epicenter of a fundamental shift in infrastructure spending that’s reshaping how hyperscalers like Microsoft, Meta Platforms, and Amazon deploy capital. Rather than betting on AI chip manufacturers, smart investors should be looking at the companies literally building the backbone that powers the entire AI data center revolution.

The AI Chip Cooling Crisis Creates a $500 Billion Buildout Opportunity

The scale of AI infrastructure spending is staggering. According to Goldman Sachs, hyperscalers are projected to invest $500 billion in data center infrastructure this year alone. This spending surge isn’t just about more servers—it’s fundamentally about solving one of the most pressing technical challenges in AI: heat dissipation.

Traditional server racks consume between 10 and 15 kilowatts of power and can be cooled with conventional methods. Modern AI racks, however, generate 80 to 100 kilowatts and demand entirely new cooling architectures. This exponential increase in thermal output has created an urgent need for advanced liquid cooling solutions—a market that’s expected to expand at a 35% annual rate through 2028, according to Eaton management.

This cooling challenge isn’t a minor technical detail—it’s the fundamental enabler that makes scaling AI infrastructure possible. Without solving thermal management, the hyperscaler capex boom simply cannot continue.

Eaton’s Boyd Thermal Acquisition: A Strategic Bet on Liquid Cooling

Eaton positioned itself strategically by announcing its acquisition of Boyd Thermal, an established player in liquid cooling systems. This deal, expected to close in the second quarter, gives Eaton a dominant foothold in the fastest-growing segment of the data center infrastructure market.

Eaton already supplies critical electrical infrastructure to data centers through switchgears, transformers, power distribution units, uninterruptible power supplies, and energy storage solutions. The Boyd Thermal acquisition transforms the company from a power distributor into a comprehensive infrastructure enabler—controlling both electrical management and thermal solutions.

This vertical integration is crucial. As hyperscalers build massive AI complexes, they need partners who can solve multiple infrastructure challenges simultaneously. Eaton now fits that profile perfectly.

Record Demand Signals the Beginning, Not the Peak

The real validation of this thesis comes from Eaton’s recent financial performance. In the third quarter alone, the company reported a 70% year-over-year surge in data center orders. Data center sales climbed 40% during the same period, while the backlog for its Electrical Americas segment swelled to $12 billion—a 20% year-over-year increase.

Even more telling: megaprojects valued over $1 billion saw $239 billion in total announcements during Q3, with data centers accounting for nearly half. These aren’t small, experimental deployments—they’re massive, mission-critical infrastructure projects that represent the hyperscalers’ long-term commitment to AI.

This demand profile suggests we’re still in the early innings of the AI data center buildout cycle. The backlog of $12 billion indicates visibility into future revenues, providing a predictable growth trajectory that most AI stocks cannot offer.

Infrastructure as a Superior Investment Framework Versus AI Stocks

While AI stocks capture headlines and attract momentum traders, they face structural headwinds. Most are trading at premium valuations with competition intensifying, while their forward guidance remains uncertain. Eaton, by contrast, operates in a less crowded, more defensive category of the AI infrastructure ecosystem.

The company trades at 26.4 times current earnings—a reasonable valuation for a company with 70% order growth and a massive backlog serving an industry that’s committed to spending $500 billion this year. The key advantage: Eaton’s revenue is far more predictable than pure AI stocks. Orders convert to backlog; backlog converts to revenue.

This is the classical “pick-and-shovel” investment thesis applied to AI. During gold rushes, sometimes the most reliable profits came not from miners seeking gold, but from suppliers providing the equipment and infrastructure. Similarly, as hyperscalers compete frantically to build out AI capacity, the infrastructure suppliers—not the AI chip vendors—often enjoy more stable returns.

Why the AI Data Center Boom Has Years Ahead

One legitimate risk exists: if hyperscalers unexpectedly pull back on capital expenditures, demand for companies like Eaton would suffer. However, there are no current indicators of such a pullback. The data center buildout will likely unfold over several years as hyperscalers expand geographically and deepen their AI capabilities.

This extended timeline creates a multi-year tailwind for Eaton’s business. Unlike cyclical AI stocks vulnerable to sentiment shifts, Eaton operates within a structural spending cycle backed by trillion-dollar companies with concrete AI deployment commitments.

For investors seeking exposure to the AI revolution without the volatility of semiconductor stocks or the valuation pressures of pure AI software plays, Eaton offers a compelling alternative. It’s the unglamorous but increasingly indispensable foundation upon which the entire AI data center revolution depends.