After a lackluster performance in 2025, Eaton is a club that could be better off. Stocks have trended modestly down this year, lagging far behind the S&P 500’s industrial sector, which has risen more than 19%. The electrical equipment supplier failed to impress Wall Street’s lofty expectations. President Donald Trump’s tariffs haven’t helped sentiment either. Still, Eaton is one of five stocks in our 35-stock portfolio poised for a rally in 2026. Year-to-date performance: Down about 3% Forward price-to-earnings ratio: 23.3, compared to the five-year average of 23.5, according to FactSet data. Our Rating: Hold Equivalent 2 Rating Our Price Target: $400 per share ETN YTD Mountain Eaton (ETN) Year-to-date Performance After years of riding the AI wave to new heights, Eaton’s stock price was left stranded in 2025. However, continued momentum in the data center business suggests the stock should rise again in 2026. In some ways, Eaton was a victim of 2025’s success. As in the past few years, when the AI boom was in its early stages, Wall Street has set a high bar for a beat-and-raise quarter. Eaton’s earnings per share beat expectations in all three quarters this year, but the average beat beat the FactSet consensus by just 0.6%, 2.9% for 2024 and 4.7% for 2023. As a result, investors’ expectations for 2026 should become more realistic after this year’s modest performance. If the massive spending on artificial intelligence continues — which UBS, for example, predicts will increase 33% year over year to $500 billion by 2026 — then Eaton should get its fair share of those dollars. Big technology companies known as hyperscalers, such as Meta Platform, Microsoft, and Amazon, are among the biggest spenders. And their demand for more computing power for generative AI services shows no signs of slowing down. Eaton’s Electrical Americas division, which sells switchgear, transformers, backup power systems, and other electrical equipment needed to operate data centers, is where the AI spending flows. The division accounted for approximately 46% of Eaton’s revenue in 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 the business was up 40% annually. This is clear evidence that the company is doing well. Eaton executives said more upside is in store for the company’s largest business unit. “This strong demand situation gives us confidence in our ability to deliver sustainable growth and value to our shareholders,” CEO Paulo Ruiz said in a November earnings call. The company is making the smart move to focus more on data center trends in 2026. Eaton announced in November that it would acquire liquid cooling specialist Boyd Thermal for $9.5 billion. This adds to our portfolio of products that control excess heat in energy-intensive operations such as AI computing. Boyd Thermal projects sales of $1.7 billion in 2026, approximately 80% of which will come from its data center division. With Boyd’s help, Eaton will ensure that the AI servers receive the power they need to operate and prevent overheating that would limit performance. Eaton predicts the global water cooling market will grow from approximately $3 billion in 2018 to approximately $8 billion to $9 billion by 2028. Eaton executives predict the market could grow between $15 billion and $18 billion by 2030. Jim Cramer previously said of the deal, “This gives us even more depth in the data center, which should drive the stock higher.” Beyond the spell of high expectations, other headwinds weighing on Eaton’s stock, such as capacity expansion, appear to be subsiding. Eaton has since addressed these issues with additional investments to address shortages in transformers, switchgear, and other equipment. “We continue to invest, we continue to reduce lead times, and our backlog continues to grow,” Lewis said at the UBS Industry Conference on Dec. 2. Other headwinds for 2025 include President Trump’s tariffs, which have increased Eaton’s costs. That pressure should also be alleviated. Wall Street analysts seem to agree with us. Deutsche Bank earlier this month named Eaton a top 2026 pick in the sector with a buy rating. “For the past three years, our recommendations have been dominated by companies most interested in the data center market, given the robust growth from AI investments,” the analysts wrote. “While we understand the market’s concerns about a potential AI bubble, fundamentals remain strong, supporting accelerating order growth and record backlogs. This provides confidence in our view that the consensus continues to significantly underestimate the earnings power of (Eaton and other industries) with significant data center revenue.” (Jim Cramer’s charitable trusts are Long ETN, META, AMZN, MSFT. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
