TE Connectivity: Powering the AI Buildout, but the Tape Walks Away
Record orders and a power-focused acquisition reinforce the secular story, yet the stock sits in a drawdown.
TEL · Earnings Call · 2026-07-22
An Inflection Point in Order Flow
We are at the intersection of the largest technology and infrastructure investment cycle that's taking place around the world.
That is how CEO Terrence Curtin opened TE Connectivity's third-quarter fiscal 2026 earnings call, and the numbers back him up. The company reported record orders of $5.7B, up 27% year-over-year, with broad-based gains across both segments. Its record order momentum has built a backlog that gives management "increasing visibility into continued broad-based growth" as they exit the fiscal year. The stock, however, tells a different story: TEL is down 11.4% over the last 90 days and sits roughly 18% below its November 2025 peak, a divergence that suggests the market is pricing in skepticism about the sustainability of the AI capex cycle or the company's ability to convert order momentum into durable earnings. Yet the call itself was a portrait of a company firing on all cylinders.
Power and Data: Two Sides of the Same Coin
The heart of TEL's narrative is that AI infrastructure demands not only high-speed data connectivity but also ever-more-powerful energy delivery. Terrence articulated this clearly: "Our positioning created opportunities across multiple long-term growth drivers as increasing data and power requirements are reshaping our customers' architectures." That dual exposure is reflected in the numbers: Digital Data Networks (DDN) orders are up over 70% year-to-date, while the energy business grew 33% organically, and both are benefiting from the buildout of data center power infrastructure. Management estimates about 20% of the energy business is directly tied to data center build-outs, and the AI cloud revenue run-rate continues to shift left, with the $3B target now expected to be exceeded.
The strategic bolt-on acquisition of Astrodyne TDI for $1.4B is a deliberate move to deepen TEL's power and filter portfolio, particularly for mission-critical applications. Heath Mitts, CFO, noted the business "will be accretive to our growth rates and our margins" and that it complements existing power filter capabilities from the Schaffner acquisition. This is a clear signal that TE is not just riding the data wave but is investing to own the power chain as well. "We get excited about power and data because when you think about where we play in the architecture, somebody's making a semi choice, somebody's making a power supply choice," Terrence explained. The acquisition also expands TEL's exposure to semiconductor equipment, which itself is AI-driven demand.
Copper, Optics, and the Architecture Endgame
A recurring theme this quarter was the copper-versus-optical debate, which has become a focal point for investors trying to handicap TEL's content story. Terrence was emphatic that it's not an either/or: "Copper's going to be the heavy workload" within the rack, while optics will increasingly appear in scale-out architectures. The RAM Photonics acquisition gave TEL fiber-attached connectivity (FAU), which Terrence describes as "an incremental TAM" that won't see meaningful revenue until 2028, but the customer engagement is already strong. "It's early days. I think this is the type of thing, you won't really see meaningful revenue until we get to 2028 and beyond that," he said. The high voltage architecture trend—such as 800V data centers—also plays into TEL's hands, as power connectivity can represent roughly one-third of the AI revenue opportunity. Terrence noted that "as the industry moves towards higher voltage architectures, we are well positioned to support our customers' evolving connectivity requirements." This is a subtle but important shift: TEL is increasingly framing itself as a both-data-and-power company, not just a connector maker.
The record order activity is not confined to AI. Transportation Solutions saw 19% order growth, with automotive content outperformance of 4–6 points expected for the full year. Terrence highlighted that vehicle production is roughly flat, but TEL is gaining share through data connectivity in the car and electrification, particularly in Asia. The content outperformance narrative underscores the durability of the franchise even in a weak production environment.
From a financial standpoint, the company is executing on its margin expansion playbook. Adjusted operating margin expanded 90 basis points to 21.9%, and adjusted EPS grew 22% to $2.94. The fundamentals data from the prior quarter already pointed to an upward trajectory: operating margin rose to 20.1% (up 1.9pp year-over-year), and the trend has been consistently positive over the past nine years, with a clear acceleration in the last few quarters. Free cash flow generation remains robust—year-to-date FCF is ~$2.2B, and the company returned ~$2B to shareholders. The balance sheet remains investment-grade, and the Astrodyne deal will be funded from cash, so leverage stays manageable.
Looking ahead, management's confidence is anchored in the record backlog, which gives visibility into fiscal 2027. Terrence said: "The order momentum and backlog growth give us confidence that our strong performance will continue into next year." That optimism, however, has not yet converted into price action. The stock's recent decline might reflect concerns about cyclicality in the semiconductor and data center markets, or simply profit-taking after a long run. But for investors willing to look through the noise, TE's positioning at the intersection of data and power, its expanding TAM, and its disciplined capital deployment make it a compelling long-term compounder.
In summary, TEL's latest report is not just about beating numbers—it's about a strategic repositioning to own the full power-and-data architecture. The power chain, the AI cloud ramp, and the Astrodyne TDI acquisition all point to a company that is actively building for the next decade. The tape may be skeptical today, but the backlog speaks louder than the ticker.