The physical infrastructure enabling artificial intelligence requires considerably more than just high-performance accelerators and primary grid connections. It also relies on millions of high-density connectors, backplane interconnects, and power-filtering devices to connect rack-level structures, areas where TE Connectivity plc (NYSE:TEL) holds a significant bottleneck position. As hyperscalers and enterprise data center operators ramp up capital expenditure deployment around the world, demand for critical electrical connector systems has transformed from a passive secondary tailwind to a direct beneficiary of the AI growth cycle.
The company’s fiscal third-quarter 2026 report showed this demand in real time, with record top-line performance, order velocity, and profitability. Despite exceeding Wall Street expectations in every fundamental indicator, shares fell roughly 7% following the release, indicating the market’s focus on sequential forecast trends over historical trailing figures.
Record Q3 Operations and Astrodyne M&A
Operational execution in the third quarter set new highs across numerous business areas. Net revenue increased 14% year-over-year to $5.16 billion, above Wall Street expectations by more than 3%. Adjusted earnings per share rose 22% year-over-year to $2.94, exceeding the average estimate of $2.85. The report’s defining metric was order flow, which increased 27% year-over-year to a record $5.7 billion, reflecting over $1 billion in incremental booking expansion vs. the prior year period. Meanwhile, profitability increased significantly, with adjusted operating margins improving 90 basis points to 22% and quarterly free cash flow totaling $883 million.
The underlying sector distribution highlights where AI momentum is growing the fastest. Industrial Solutions revenue increased 22% year-over-year to $2.58 billion, driven mainly by data center rack deployments and energy infrastructure growth. Chief Executive Officer Terrence Curtin stated that AI cloud momentum is far above initial multi-year predictions, with data center connection and power distribution orders rising more than 70% year-to-date.
Moreover, to back up its power-handling portfolio, TE Connectivity plc (NYSE:TEL) signed a $1.4 billion formal agreement to acquire Astrodyne TDI. The acquisition includes specialized power management and electromagnetic filtering solutions for critical industrial, semiconductor, and defense applications, providing approximately $250 million in annual revenue to the Industrial Solutions segment once completed.
Guidance Deceleration
The quick selloff following a record-breaking quarter highlights the strict performance measures established for AI infrastructure equities in 2026. Management’s fiscal fourth-quarter estimate outlined sales of about $5.25 billion, an 11% year-over-year rise, and adjusted earnings per share of $3.05, an 18% increase. While both figures show robust double-digit growth, they represent a significant slowdown from the 27% order growth and 22% earnings expansion experienced in the third quarter.
Valuation Comparison
When compared to close industry peers, the post-earnings dip makes for an intriguing value setup. TE Connectivity plc (NYSE:TEL) trades at a forward price-to-earnings ratio of about 16x, which is a slight discount when compared to the overall technology hardware median of 21x and a significant discount to its own ten-year historical average of around 28.5x. The value disparity becomes even more evident when contrasted to Amphenol, its most direct connection competitor, which trades at a premium multiple of over 26x forward earnings.
Sentiment Check
Institutional positioning suggests that smart money spotted this relative value potential before the third-quarter report. According to Insider Monkey’s Q1 2026 hedge fund database, 72 top funds held stakes in TE Connectivity plc (NYSE:TEL) at quarter-end, up considerably from 62 funds in the fourth quarter of 2025. Meanwhile, short interest is low, at 2.84% of outstanding shares.
Insider Monkey’s Verdict
TE Connectivity plc (NYSE:TEL) remains a highly profitable player in the physical AI buildout, combining record $5.7 billion in order bookings with growing operational margins and solid cash conversion. Although the market responded negatively to the fourth-quarter projection decline, trading at around 16x forward earnings, or just over half the multiple of direct peer Amphenol, provides an appealing margin of safety. The recent 7% decline, aided by the accretive merger of Astrodyne TDI, represents an appealing entry position for value-conscious tech investors.
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: 33 Stocks That Should Double in 3 Years and 15 Stocks That Will Make You Rich in 10 Years
Disclosure: None. Follow Insider Monkey on Google News.
