Eaton delivered an excellent quarter on Tuesday, giving shares of the artificial intelligence buildout winner a much-needed jolt. The results and outlook demonstrated why we've stuck with the stock despite a turbulent period for the AI trade. Revenue for the third quarter ended Sept. 30 increased 28% year-over-year to a record $8.95 billion, ahead of the LSEG consensus estimate of $8.51 billion. Adjusted earnings per share (EPS) rose 20% to $3.68 apiece. That's better than the $3.54 expected, according to LSEG.

Shares are up almost 7% in afternoon trading to $391 and change, though they remain well below their August closing high of roughly $460. With Eaton reporting a clean beat-and-raise, how the stock trades into the close and in the coming days represents something of a referendum on the data center trade, especially once the results of Tuesday's midterm election are behind us. ETN YTD mountain Eaton's year-to-date stock performance. Bottom line The electrical equipment supplier turned in a very strong quarter that should help solidify a bottom in the stock — assuming we don't see a renewed, broad-based rejection of the AI trade.

Like many stocks in the data center group, Eaton has lost momentum in recent months amid concerns about political backlash and financing costs. One of the few blemishes in Eaton's third-quarter report is the Aerospace segment, which missed revenue estimates for the second quarter in a row. But even then, its operating profit still topped consensus. And this business selling fuel and wiring systems and other components for airplanes is not core to our investment thesis — all the data center revenue shows up in its Electrical Americas and Electrical Global segments. The most important end market for the company is still booming, and the benefits of the company's increased manufacturing capacity to support that growth are showing up too.

Organic revenue growth came in well ahead of consensus estimates, as did companywide adjusted operating margin, which expanded year over year. Notably, while organic growth of 19% year over year is impressive, it would have been even higher, at 21%, excluding the results of the soon-to-be-separated Mobility business. Data center revenues in particular were up 65% year over year in the quarter. Better yet, management increased its outlook for the year, projecting greater organic growth for both Electrical Americas and Electrical Global.

"Continued strength across end markets combined with our record backlog provides strong visibility into our outlook for the year," CEO Paulo Ruiz said on the earnings call. "This is the third time we've raised organic and adjusted EPS guidance this year. With the industry's best positioned portfolio and demand still building we are not just finishing 2026 strong, we are carrying real momentum into 2027 and beyond."

Importantly, none of Eaton's end markets are expected to decline in 2027. Strong double-digit growth is expected for data centers and distributed IT, along with commercial aerospace. Those markets are about a third of sales, though that percentage will increase when the Mobility separation is completed early next year. The lagging markets are light vehicles and residential, which are expected to be flat. Combined, they currently represent about 10% of Eaton's portfolio.

The $9.5 billion acquisition of Boyd Thermal is also paying off in its second full quarter under Eaton ownership. This wise deal, which closed in March, adds leading liquid-cooling technology for server racks to the Eaton portfolio, enabling the company to capture a bigger chunk of data center spending. "Boyd Thermal is an important accelerator for Electrical Global," Ruiz said.

"Since our last update, Boyd has continued to significantly outperform our exceptions, reinforcing the strategic rationale for the acquisition and validating the strength of Eaton's position in the data center infrastructure market. The business delivered nearly triple-digit year-over-year growth, with demand remaining exceptionally strong across the portfolio." As a result, Eaton once again raised its full-year outlook for the Boyd business by $100 million to $1.9 billion (about 15% of that will have come before the deal closed).

The data center opportunity continues to get bigger for Eaton. In the U.S. alone, Ruiz said Eaton's tracking shows that announced data center projects now amount to 366 gigawatts, up from 307 gigawatts just three months ago. To put that in perspective, he said installed data center capacity currently stands at about 50 gigawatts. In other words, a lot more Eaton equipment is needed both inside the buildings and across the electric grid to power them. We're reiterating our hold-equivalent 2 rating as we look for signs that the bearishness plaguing the AI trade more broadly is abating. We also are keeping our $450 price target.

Commentary On a combined basis, the Electrical Americas and Electrical Global segments delivered 24% organic growth and 34% total growth in the third quarter. Segment margin, a measure of operating profitability, came in at 26.4% — representing 1.9 percentage points of sequential expansion. On a rolling 12-month basis, order growth accelerated to 43%, leading to an overall book-to-bill ratio of 1.2 for the electrical sector, and a 46% increase in the backlog to over $20 billion. (A book-to-bill ratio above 1 indicates orders are being received faster than they can be delivered, leading to backlog growth.)

On the slide deck presentation , management called out electrical sector data center order growth of over 100% on a rolling 12-month basis, "along with accelerating demand in commercial & institutional and industrial facilities." Electrical Americas posted record sales and operating profit, with 22% organic growth. On a rolling 12-month basis, orders increased 39%, leading to a book-to-bill ratio of 1.3.

The backlog ended the quarter up 33% year over year to a record $16 billion. Segment profit margin was down half a percentage point from the year-ago period. However, it was up 2.3 percentage points sequentially from the second quarter. On the call, CEO Paulo Ruiz said "our new capacity is now turning into output and into margin." All of Eaton's leading indicators are pointing to further growth ahead. Announcements of mega projects, defined as those with more than $1 billion of investment, were up 85% year to date (through September).

"These are large, multi-year infrastructure and electrification projects, and they will turn into demand for our products and solutions," Ruiz said on the call. The negotiations pipeline, meanwhile, is up 55% year to date. "That is our earliest signal of future offers, and it is broad across every end market we serve," the CEO said. Electrical Global also delivered record revenue and operating profit. Sales were up 58% year over year, with 27 percentage points being organic and another 31 percentage points attributable to the Boyd acquisition.

Order growth of 51% on a rolling 12-month basis led to 121% year-over-year backlog growth to close out the quarter. "Across the business, demand is both accelerating and broadening," Ruiz said. Boyd will lap the one-year mark in March, meaning one of the fastest growing businesses in the data center end market becomes classified as an organic growth driver.

Accordingly, Ruiz said Eaton expects to update its long-term growth target for this segment next year (currently, the target is 5% per year from 2026 to 2030). Turning to Aerospace , where we find products such as main engine fuel pumps for commercial aircraft and hydraulic power packs for business jets, sales once again came up short versus expectations. Thanks to a stronger-than-expected profit margin, operating profit managed to outpace expectations despite the top-line miss. On a rolling 12-month basis, the book-to-bill ratio was 1.2, leading to 33% year-over-year backlog growth.

The 11% revenue growth was the result of a 6% organic increase and a 5% tailwind from acquisitions . Mobility , which is the combination of the prior vehicle and eMobility segments, outpaced expectations for sales, operating margin and operating profits. All three metrics increased year over year. A 9% organic revenue increase was enhanced by a 1% benefit from foreign exchange. Eaton is on track to divest this unit, its smallest by revenue, in the first four months of 2027, via a Reverse Morris Trust transaction.

That will help Eaton avoid a large corporate tax bill that an outright sale of the business might have triggered. Given this unit is the slowest growing of all the operating segments, with the thinnest profit margin, the separation should be immediately beneficial to overall organic sales growth and profitability once finalized. Guidance Eaton raised its full-year outlook for organic growth and boosted the midpoint of its adjusted EPS forecast. It now expects organic growth of 13% to 15%, up from 11% to 13%, and above the 13.2% the Street was expecting, according to FactSet.

Margins are still expected to be in the range of 24.1% to 24.5%, exceeding the 24% FactSet consensus estimate at the midpoint. Adjusted EPS is now expected to be in the range of $13.70 to $13.80 per share, up from the prior range of $13.40 to $13.60.

That's better than the $13.61 per share estimate, according to LSEG. Along with the improved full-year view, the fourth (current) quarter outlook came in better than expected. Organic growth is projected to be in the range of 13% to 15%. The midpoint of 14% surpasses the 13.2% FactSet consensus estimate. Segment margins are expected to be between 25.4% and 25.8%, below the 25.9% estimate at the midpoint. Adjusted EPS is expected to be in the range of $4.05 to $4.15, which beats the $4.07 LSEG estimate at the midpoint. (Jim Cramer's Charitable Trust is long ETN. )