Amphenol earnings tops estimates, what it means for the AI space

Amphenol Corporation, a key player in the design, manufacture, and marketing of electrical, electronic, and fiber optic connectors, interconnect systems, antennas, sensors, and specialty cable, reported robust Q2 2024 earnings. The company operates through three segments: Harsh Environment Solutions, Communications Solutions, and Interconnect and Sensor Systems. Its products are critical to the AI infrastructure buildout, making Amphenol a key indicator of trends in the AI sector.

In Q2 2024, Amphenol achieved record sales of $3.61 billion, marking an 18% increase in U.S. dollars and an 11% organic growth compared to the same quarter in 2023. The company reported a GAAP Diluted EPS of $0.41, an 11% increase from the prior year, and a record Adjusted Diluted EPS of $0.44, a 22% increase. The GAAP and record Adjusted Operating Margins were 19.4% and 21.3%, respectively, highlighting the company's strong profitability.

Amphenol's operating and free cash flow for the quarter were $664 million and $528 million, respectively.

The company announced the acquisition of Lutze, with the U.S. segment of Lutze closing during the quarter and the European segment expected to close in the third quarter. Additionally, Amphenol completed the previously announced acquisition of CIT and signed a deal to acquire CommScope’s mobile networks-related businesses in July. Reflecting its strong financial health, the company increased its quarterly dividend by 50% to $0.165 per share.

CEO R. Adam Norwitt highlighted the diverse growth drivers for Amphenol, including IT datacom, defense, commercial air, mobile devices, mobile networks, and automotive markets, alongside contributions from the company’s acquisition program. These gains were slightly offset by organic moderations in the broadband and industrial markets. Norwitt also expressed pride in the company's record Adjusted Operating Margin of 21.3% and overall outstanding performance during the quarter.

Looking ahead, assuming current market conditions and constant exchange rates, Amphenol expects Q3 2024 sales to range between $3.70 billion and $3.80 billion, representing a 16% to 19% increase over the prior year quarter. Adjusted Diluted EPS is anticipated to be between $0.43 and $0.45, marking a 10% to 15% increase from Q3 2023. This guidance does not account for the impact of acquisitions that have not yet closed.

Amphenol also announced a 2-for-1 stock split approved by the Board of Directors, which was distributed as a stock dividend to shareholders of record as of May 31, 2024. The additional shares were distributed on June 11, 2024, and the company's common stock began trading on a split-adjusted basis on June 12, 2024.

Amphenol shares have surged by 34% year-to-date, compared to a 17% increase in the S&P, driven by investor enthusiasm around AI-driven upsides and strategic mergers and acquisitions that enhance earnings and diversify risks. The shares are trading at a peak next twelve months (NTM) earnings multiple of 38x P/E, indicating investor expectations of a sustained higher growth rate.

In summary, Amphenol’s Q2 2024 earnings report demonstrates significant growth driven by diversified end markets and strategic acquisitions, positioning the company as a critical player in the AI infrastructure sector and reflecting its resilience and strong performance in a dynamic market environment.