Legrand's Data Center Play: Riding the Wave of Digital Infrastructure Growth

The global shift to cloud computing, artificial intelligence, and edge technologies has ignited a gold rush for companies positioned at the intersection of energy efficiency and high-voltage innovation. Among them, France's Legrand, a leader in electrical and digital infrastructure solutions, is emerging as a key beneficiary of this structural boom. With its upgraded guidance and strategic acquisitions, Legrand is well-positioned to capitalize on long-term demand for data center infrastructure—provided it navigates supply chain risks and geopolitical headwinds.

The Data Center Tailwind: A Structural Growth Story

The demand for hyperscale data centers—driven by cloud adoption, AI training, and 5G networks—is surging. According to Synergy Research, global data center spending is projected to hit $350 billion annually by 2027, with hyperscale facilities accounting for over 60% of that growth. Legrand's focus on high-voltage distribution systems, energy-efficient cooling, and interoperable connectivity solutions places it at the heart of this trend.

In Q1 2025, Legrand's data center segment contributed 20% of total sales, up from 19% in 2024, with organic sales growth of 7.6%. The U.S. market alone saw 20.2% sales growth in data center solutions, fueled by hyperscale projects from tech giants. CEO Benoît Coquart emphasized in recent earnings calls that the segment's order book is “strong and expanding,” with pipeline visibility extending into 2026.

Strategic Acquisitions Fuel Growth

Legrand's €5 billion acquisition pipeline through 2030—averaging €800 million annually—has been critical to its data center dominance. Recent deals like Netrack (India) and Computer Room Solutions (Australia) have bolstered its capabilities in power distribution and cooling, while Performation (Netherlands) expanded its reach into smart healthcare infrastructure. These acquisitions not only add scale but also improve margins: data center businesses operate at higher gross margins than Legrand's traditional electrical segments.

Financial Resilience Amid Headwinds

Despite macroeconomic challenges, Legrand's financial discipline shines through. In Q1 2025, adjusted operating margins expanded to 20.7%, up 0.2 points year-on-year, thanks to cost controls and higher-margin data center sales. Free cash flow rose 29% to €188 million, though geopolitical risks—such as U.S. tariffs on European goods—threaten future profitability. Management estimates these tariffs could add €150–200 million in annual costs, mitigated by price hikes and supply chain shifts.

Legrand's dividend policy—€2.20 per share, a 5% increase—reinforces its financial stability. With a net debt-to-EBITDA ratio of 1.7, it retains flexibility to pursue acquisitions even as peers face tighter credit conditions.

Valuation: Attractive vs. Peers, But Not Without Risks

Legrand's current valuation reflects its growth profile: a 16.5x EV/EBITDA multiple is below the 18.2x average of European industrial peers, while its P/E of 19.2x trails Schneider Electric's 24.5x. This discount suggests room for upside if data center tailwinds continue.

However, risks loom large. Supply chain volatility—exacerbated by U.S.-China trade tensions and semiconductor shortages—could disrupt delivery timelines. Legrand's 41% reliance on European sales, where construction activity remains sluggish, adds geographic concentration risk. A prolonged weakness in Europe's residential market could offset data center gains.

ESG Alignment: A Sustained Competitive Edge

Legrand's commitment to sustainability aligns with institutional investor priorities. Its 2030 CSR roadmap targets 30% carbon reduction and 100% recycled packaging, while its energy-efficient cooling systems directly address data centers' rising power demands. This ESG focus not only reduces regulatory risks but also attracts capital from ESG-focused funds, which now account for over 30% of Legrand's shareholder base.

Investment Thesis

Legrand's strategic bets on data center infrastructure are paying off, with secular demand trends likely to sustain growth through the decade. Its 2025–2030 CAGR target of 6–10% is achievable if it executes on acquisitions and manages geopolitical risks.

Buy recommendation: For investors with a 3–5 year horizon, Legrand offers a compelling mix of growth and dividends. The stock's valuation discount versus peers and its ESG credentials make it a standout in the industrial sector.

Hold caution: Short-term volatility may arise from U.S. trade policy uncertainty and European macro weakness. Monitor margin trends and data center order flow closely.

In the data center arms race, Legrand is no longer just a supplier of wires—it's a strategic partner to the digital age. The question now is whether its execution can keep pace with its ambition.