TE Connectivity's Scalability Play: Capturing Growth in EVs, AI, and Automation

The investment case for TE Connectivity rests on a simple, powerful premise: it is positioned to scale with some of the most powerful secular trends of our era. The company operates within a total connectivity market valued at approximately $130 billion, a vast and growing ecosystem where its rugged, high-performance solutions are essential. Its strategic plan, unveiled at an investor day last November, targets 6-8% growth, a figure that is not arbitrary but a direct function of the market expansion it is chasing. The core growth levers are electrification, artificial intelligence, and industrial automation-each a multi-year capital expenditure cycle that favors established, scalable suppliers.

The most immediate catalyst is the global shift to electric vehicles. TE is targeting the EV powertrain and high-voltage interconnects that are fundamental to these platforms. This isn't just incremental growth; it represents a material increase in per-vehicle content compared to internal combustion engines. With EV penetration projected to reach 20-25% globally in the near term, this creates a mid- to high-single-digit organic growth engine for its transportation segment. The company is actively building capacity in key regions like Mexico, Eastern Europe, and India to shorten lead times and secure this content.

Beyond the automotive sector, TE is aggressively targeting two other high-growth, capital-intensive arenas. First is AI-enabled data infrastructure. The company is aligning its roadmap with the next generation of server architectures, supporting 112G/224G PAM4 and co-packaged optics for AI servers and accelerators. This positions it directly within the hyperscaler capital expenditure cycles driving data center expansion. Second is factory automation. TE is focusing on industrial automation, robotics, and harsh-environment connectors, capturing onshoring-driven demand in Europe and North America. Both sectors benefit from long product lifecycles and multi-year OEM content agreements, providing a predictable revenue stream.

This scalability is amplified by TE's broad product portfolio and global footprint. Its ability to cross-sell from its core industrial and automotive businesses into these adjacent high-growth segments is a key competitive advantage. A single customer in a smart factory or a data center may use TE's connectors for power, signal, and sensing across multiple systems. This integrated platform approach, combined with targeted M&A and partnerships to fill strategic gaps, allows the company to capture more value from each customer relationship. The bottom line is that TE is not chasing a single trend; it is building a platform to scale with the electrification of everything, the explosion of data, and the automation of industry.

Execution and Financial Fuel: Record Performance and Capital Strategy

The scalability thesis hinges on capital. TE Connectivity's recent financial performance demonstrates it has both the operational execution and the cash generation to fund its ambitious growth plan. The company delivered a clean sweep of records last fiscal year, with full-year sales of $17.3 billion and adjusted EPS of $8.76. More importantly, this top-line growth translated directly into robust profitability, with adjusted operating margin of 20% hitting a new high. This operational excellence provides the foundation for its capital strategy.

That strategy is now clearly defined. Last year, TE generated a staggering free cash flow of $3.2 billion for the full year, a figure that includes a record $1.2 billion in the fourth quarter alone. This massive cash engine is being deployed with discipline. The company returned $2.2 billion to shareholders through dividends and buybacks while also investing $2.6 billion in bolt-on acquisitions. This dual approach-rewarding owners while actively expanding its portfolio-provides ample fuel for its growth initiatives in EVs, AI, and automation. The scale of its cash generation means it can fund organic expansion, strategic M&A, and shareholder returns without straining its balance sheet.

A key change starting in the new fiscal year will refine how investors track its core performance. Beginning in Q1 FY26, adjusted earnings will exclude amortization expense on intangible assets. While this adjustment may make future earnings comparisons more complex, it aligns the reported metric more closely with the company's focus on underlying operating performance. It signals a shift toward a cleaner, more transparent view of profitability, which is critical for a growth investor assessing the sustainability of margins as TE scales.

The bottom line is that TE is executing flawlessly on the financial side. Its record sales and earnings prove its market positioning is working, while its massive free cash flow provides the war chest needed to capture the growth opportunities ahead. This financial strength is not a side benefit; it is the essential capital that powers its scalability play.

The Growth Plan in Action: Targets, Margins, and Catalysts

The scalability thesis now meets its execution test. At its November 2025 investor day, TE Connectivity laid out a clear, ambitious target: 6-8% growth with a goal of achieving adjusted operating margin of over 21%. This is not a vague aspiration but a specific roadmap to scale its $17 billion sales base. The feasibility of this plan rests on two critical, quarterly metrics: consistent order growth and the expansion of its already-strong margins.

The primary catalyst for hitting these targets is flawless execution. The company's recent record results provide a solid foundation, but the path forward requires translating its strategic focus into tangible quarterly momentum. Investors will be watching for sustained order growth that exceeds its 6-8% target, signaling strong demand pull-through from its EV, AI, and automation initiatives. More importantly, the margin expansion to over 21% hinges on operational discipline. The company must leverage its scale to offset any input cost pressures while funding its growth investments, a balance it has demonstrated in the past but must now repeat consistently.

Analyst consensus reflects a bullish view on this execution. The average price target across Wall Street is $278.50, implying a 23% upside from recent levels. This optimism is backed by a mix of strong buy and outperform ratings, with some firms raising targets as recently as last week. The high end of the forecast range near $306 suggests a belief that TE can not only meet but potentially exceed its margin goals, unlocking significant value.

The bottom line is that TE's growth plan is now live. The targets are set, and the capital is in place. The coming quarters will be a proving ground, where the company's ability to convert its market positioning into top-line growth and margin expansion will validate its scalability thesis for investors.

Risks and Watchpoints: Guardrails for the Growth Story

The scalability thesis is compelling, but a disciplined growth investor must also identify the guardrails. The path to 6-8% growth and over 21% margins is not without friction. The primary risks are cyclical downturns in its core industrial and automotive markets, which could pressure demand for its connectors and sensors. These sectors are inherently tied to capital expenditure cycles, and any broad economic slowdown could delay OEM spending. Then there is the integration risk of any future acquisitions. While targeted M&A is a key lever for capturing share in high-growth segments like AI data centers, each deal introduces complexity in merging operations, cultures, and technologies. Success depends on execution, and missteps could dilute margins or divert focus from core growth initiatives.

For now, the most critical watchpoints are quarterly. Investors should monitor order growth to gauge whether the company is pulling through demand from its EV, AI, and automation initiatives. Consistent beats against the 6-8% target will confirm the market expansion is translating into sales. Equally important is the margin trend. The company must demonstrate it can expand its already-strong operating margin to over 21%, a goal that requires leveraging scale to offset input cost pressures while funding its growth investments. Any deviation from this trajectory would signal operational challenges.

The company's strategy of targeted M&A and R&D investment will be crucial for capturing share in high-growth segments like AI data centers. Its roadmap for 112G/224G PAM4 and co-packaged optics is aligned with hyperscaler capex cycles, but it must continue to innovate and secure long-term content agreements. The same applies to industrial automation and EV powertrains. The watchwords are execution and integration. The financial fuel is in place, but the growth story depends on the company's ability to convert its strategic focus into sustained, high-quality earnings.