The accelerating AI infrastructure buildout, along with the ongoing electric vehicle adoption and industrial automation, is driving huge demand for electronic connectors and sensors. Expanding data center capex is driving this demand. The top five US hyperscalers are projected to spend around $730 billion this year and more than $1 trillion next year on infrastructure expansion.
Aside from AI-driven demand, the electric car market is also continuing to expand. Global EV sales surpassed 20 million units last year. However, with only about 5% of the global car stock electrified, the growth runway for connector suppliers in this market is still long.
Factory automation is another demand driver. The share of industrial manufacturers with highly automated processes is expected to more than double from 18% now to 50% by 2030.
All these trends are favorable to TE Connectivity Ltd. (NYSE:TEL) as they are expanding the market for high-performance connectivity solutions.
TE Connectivity’s Strong Results Highlight AI-Driven Growth
TE Connectivity’s fiscal Q3 revenue rose 14% year over year to $5.16 billion, beating $5 billion that analysts expected. Adjusted EPS of $2.94 topped the consensus estimate of $2.84.
On the back of the solid Q3 results, TE Connectivity Ltd. (NYSE:TEL) issued a rosy forecast for the fiscal fourth quarter. It projects revenue of around $5.25 billion, above Wall Street’s estimate of $5.16 billion. It expects adjusted EPS to reach $3.05, ahead of analysts’ expectation of $2.96.
TE Connectivity plans to acquire Astrodyne TDI for $1.4 billion. Astrodyne is a power management and filtering solutions provider that would strengthen TE Connectivity’s portfolio in high-growth industrial and AI-related markets.
How TE Connectivity Compares With Amphenol
TE Connectivity Ltd. (NYSE:TEL) and Amphenol Corp. (NYSE:APH) compete for customers in the electronic connectors and sensors market. Both companies stand to benefit from the increasing demand for the components used in data centers, cars, and factories to transmit power, data, and signals. That said, TE Connectivity and Amphenol offer varied investment profiles.
On the forward PE multiple, the valuation metrics favor TE Connectivity. It trades at a forward PE ratio of 15.95x, compared to Amphenol’s 31.45x.
In addition, income investors receive a higher cash return from TE Connectivity. The stock currently offers a dividend yield of 1.37%, compared to Amphenol’s 0.58%.
How Hedge Funds and Short Sellers View TE Connectivity and Amphenol
The number of hedge funds with stakes in TE Connectivity declined during the first quarter to 62 from 72 in the prior quarter. In contrast, Amphenol Corp. (NYSE:APH) saw an uptick in hedge fund holders to 112 funds from 103.
Still, several prominent investors maintained sizable positions in TE Connectivity. Harris Associates remained the biggest holder with a $588.6 million stake, followed by Arrowstreet Capital with $586 million and D. E. Shaw with $472.1 million. D. E. Shaw notably increased its stake by 150%.
TE Connectivity’s short interest was at 2.9% as of July 15, down from 3.1% on June 30. TE Connectivity’s 8.3 million shorted shares have 4.3 days to cover. Amphenol’s short interest climbed to 1.4% from 1.3% in the same period.
What Could Shape TE Connectivity’s Growth Outlook
TE Connectivity is exposed to several tailwinds and headwinds. The growing investment in AI data centers, ongoing adoption of electric vehicles, and continuing factory automation support its business by expanding the total addressable market.
At the same time, high costs of raw materials and borrowing, geopolitical tensions, and tariffs could pressure the company’s margins and delay customer spending. In addition, TE Connectivity must defend its turf as competition among connector suppliers intensifies.
Where the Opportunity Lies
TE Connectivity’s earnings beat, solid guidance, and growing AI-related backlog support its growth prospects. The planned acquisition of Astrodyne also brightens the outlook.
Although Amphenol stands out with its stronger hedge fund confidence and lower short interest, TE Connectivity’s lower valuation multiples mean it offers exposure to long-term tailwinds at a more reasonable price. The company also offers a superior dividend yield.
While we acknowledge the risk and potential of TEL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TEL and that has 10,000% upside potential, check out our report about this cheapest AI stock.
READ NEXT: Should You Buy Lockheed Martin After Its Strong Q2 Earnings Rally? and AI-Fueled Demand Signals a Bigger Opportunity for Bloom Energy (BE) Investors.
Disclosure: None. Follow Insider Monkey on Google News.
