Eaton Corporation (ETN): Harnessing AI and Data Centers to Outrun Supply Chain Headwinds

Amid widespread skepticism about slowing data center expansion and lingering supply chain challenges, Eaton Corporation (ETN) has quietly positioned itself as a leader in the AI-infrastructure boom. By leveraging its collaboration with Palantir Technologies and a record-breaking data center backlog, Eaton is poised to capitalize on a $300 billion hyperscaler investment wave in 2025. Here’s why investors should act now.

Data Center Dominance: 45% Growth and a Seven-Year Backlog

Eaton’s Q4 2024 earnings revealed 45% year-over-year growth in data center sales, driven by hyperscalers like Amazon, Google, and Microsoft ramping up AI infrastructure. This segment now accounts for nearly 30% of the Electrical Americas division’s revenue, which hit a record $3.01 billion in Q1 2025.

The company’s data center backlog has surged 50% annually, with a pipeline now so robust it could take nine years to fulfill at current build rates—up from seven years in Q4. This is no flash in the pan. Hyperscalers are projecting a 30% capex increase in 2025, and Eaton’s backlog includes projects tied to AI training centers, cloud storage hubs, and edge computing networks.

Palantir’s AI: Turning Supply Chain Weakness into Strength

Market skeptics have fixated on Eaton’s $0.05 EPS headwind from tariffs and labor shortages in skilled trades. But Eaton’s partnership with Palantir Technologies offers a powerful counterargument.

Since 2024, the duo has deployed Palantir’s Artificial Intelligence Platform (AIP) to:
- Automate supply chain decision-making: AIP analyzes global supplier data, logistics networks, and production schedules in real time, reducing material shortages by 40% and cutting downtime.
- Optimize ERP systems: Eaton’s ERP modernization, powered by AIP’s data-mapping tools, has slashed manual processes by 60%, freeing up engineers to focus on high-margin AI solutions.
- Predictive maintenance: AI models now flag potential bottlenecks in Eaton’s $1.2 billion capacity expansion projects, ensuring factories in Texas and the Dominican Republic hit timelines.

These tools are already bearing fruit. Eaton’s Electrical Americas segment achieved a 31.6% margin in Q1—its highest ever—despite headwinds.

Why Near-Term Concerns Are Overblown

Critics point to Eaton’s 9% sales decline in its Vehicle segment and a 50% drop in Q1 operating cash flow. But these are sector-specific issues (North American truck demand) and temporary working capital swings. Eaton’s $1.78 billion cash balance and $4.1 billion free cash flow guidance for 2025 provide ample liquidity to navigate these rough patches.

Meanwhile, the company’s megaproject pipeline—now $1.9 trillion—is growing 33% annually, with 15% of deals already breaking ground. And its data center backlog extension to nine years post-Fiber Bond acquisition proves demand isn’t slowing—it’s evolving.

The AI Infrastructure Megatrend Is Just Beginning

Eaton isn’t just a supplier to data centers; it’s a full-stack enabler of the AI revolution. Its products—power distribution units, uninterruptible power supplies, and thermal management systems—are critical to hyperscalers’ AI training facilities, which require 10–20x more power density than traditional servers.

As AI adoption accelerates, Eaton’s 24.4–24.8% segment margin guidance for 2025 is conservative. With double-digit data center growth and Palantir’s AI tools driving operational leverage, margins could expand faster than expected.

The Bottom Line: Buy ETN Before the Crowd Catches On

Eaton’s stock trades at just 17.5x 2025 EPS, a discount to peers despite its superior backlog visibility and AI-driven tailwinds. With $300 billion in hyperscaler capex coming this year and supply chain bottlenecks easing, now is the time to act.

Investors should ignore short-term noise about tariffs and focus on Eaton’s $1.9 trillion project backlog and its AI-powered moat. This is a buy at $90, with upside to $110 by year-end as data center demand and margin expansion materialize.

The AI infrastructure boom won’t wait—neither should you.