TE Connectivity Raises AI Data Center Revenue Outlook to $2.4 Billion as Growth Broadens Beyond Hyperscalers
Bernstein 42nd Annual Strategic Decisions Conference, May 28, 2026
TE Connectivity CEO Terrence Curtin used a fireside chat at Bernstein's Strategic Decisions Conference to update investors on the connector maker's growth trajectory six months after its November Investor Day, delivering an unambiguous upgrade to its artificial intelligence data center outlook while flagging a fresh round of material inflation that the company will need to pass through to customers.
AI Revenue Guidance Moves Up Again
The headline data point from the session was a guidance raise on TE's AI-related business. Curtin said that what the company expected six months ago to be $2 billion in AI data center revenue this year is now tracking closer to $2.4 billion, with the unit growing roughly 70% in 2026. Order growth is running even faster than that sales growth rate, though Curtin was careful to temper expectations for a repeat performance, noting "I don't -- I'm not sure we're going to grow 70% every year, quite frankly, I wish I could stay up here and say that." Company-wide orders were up 25% last quarter, spanning energy, aerospace and defense, and AI.
Importantly, Curtin pushed back on the notion that TE's growth story is a single-customer or single-technology bet. Of the roughly $2 billion in total company revenue growth expected this year, only about half is coming from AI; the other $1 billion is spread across energy, aerospace and defense, and a cyclical recovery in factory automation and commercial transportation.
Copper and Optical Coexist, and Power Is the Underappreciated Story
On the industry's most contested debate, Curtin was direct that copper versus optical is a false binary. "You have to realize it's going to be copper and optical. It's not a one or the other," he said, noting that TE's position is concentrated in-rack, where copper remains the workhorse, while optical scale-out connections between switches are a market TE largely does not participate in today. The company is positioning itself for optical's eventual move into the rack through technology acquisitions connecting fiber to co-packaged optics and fiber backplanes, though Curtin cautioned that scaling and cost economics for that transition are still being worked out.
A less obvious but potentially more durable growth driver is power. Curtin disclosed that roughly 25% of connections in TE's DDM business, which houses its AI work, are power connectivity rather than data connectivity, and that a move to 800-volt rack architectures could drive a 30%-plus increase in TE's content per rack versus today, as customers build separate power architectures with new bus bars and liquid cooling. Customer preferences vary widely, he said: some are avoiding 800-volt entirely, others are experimenting, and decisions hinge on whether a customer is optimizing for lowest cost or fastest architecture.
Backlog and Supply Chain Not a Constraint, Custom Ramps the Real Challenge
Asked about the ability to service surging AI backlog, Curtin said material availability is not a concern given that TE's products are custom-engineered connection solutions rather than shelf-stocked components. The bigger operational task is managing simultaneous ramp-ups and ramp-downs across customer programs, which the company has addressed by investing ahead of demand in manufacturing capacity, including a "China Plus One" strategy spanning Southeast Asia and Mexico.
Energy Business Gets a Second Look as Power Demand Broadens
TE's energy segment, roughly 10% of the company and two-thirds North American, has been posting consistent double-digit organic growth on the back of grid hardening and utility infrastructure spending that Curtin described as utilities "trying to catch up to what was always a sub-GDP electricity growth." A notable new disclosure: about 20% of the energy business is now tied directly to power connections feeding data centers, as hyperscalers step down high voltage to medium voltage on site, effectively giving TE a second, less-discussed revenue stream tied to the AI buildout beyond its in-rack DDM business. Curtin also noted that solar and renewables growth has moderated with policy shifts, though grid hardening continues to offset that softness.
Factory Automation Inflecting After Two Lost Years
TE's automation-linked business (ACL), which has struggled through a two-year post-COVID inventory malaise, has hit what Curtin called a genuine inflection point over the past three to six months, with the pickup visible across China, the United States and Europe simultaneously. "It clicked into a real inflection point in the past 3 to 6 months," he said, adding that the segment remains well below prior peak levels, implying substantial recovery runway still ahead.
Auto Stays Flat, But Content Economics Do the Heavy Lifting
Global auto production is tracking as expected at Investor Day, down slightly across all regions, and Curtin was blunt that TE does not expect "anything magical" on production over the next five years, modeling it as flat. The segment's 4% to 6% organic growth target instead rests on three pillars: EV penetration concentrated in Asia, data and autonomy content tied to Ethernet architectures in higher-autonomy vehicles, and broader electronification such as 48-volt architectures and zonal designs. Curtin quantified the EV opportunity starkly: TE's content in an electric vehicle is roughly 2x that of an internal combustion vehicle, driven by charger inlets, power electronics and battery pack connections that simply do not exist in a gas-powered car.
China remains the company's most differentiated auto market. TE's market share with domestic Chinese automakers is on par with multinationals, and Curtin said the company's content per vehicle in China is now higher than its company-wide average, partly because Chinese OEMs are pushing Ethernet and data connectivity into mainstream models rather than reserving it for premium trims, a dynamic that can add $50 to $70 of data-related content per vehicle across a platform. Winning in China, he said, requires operating on 6-to-12-month design cycles and staying three product generations ahead, a pace that would be unfamiliar to Western auto suppliers. Geopolitics has not disrupted this business, Curtin said, noting TE is roughly 90% localized in China supply chain terms and deliberately avoids markets where geopolitical risk is unmanageable.
Outside of China, EV production has notably picked up in Europe for the first time in three to four years as OEMs introduce better-priced vehicles, while North America remains stuck in what Curtin called "that churn," with major automakers still absorbing write-offs from earlier EV investment commitments. He estimated North American EV volumes will remain a modest 1 million to 2 million units out of 16 million total, calling it incremental rather than a primary growth driver for TE.
Commercial Transportation Turning Alongside Automation
TE's heavy truck and industrial transportation business, its highest market-share franchise in the entire company, is showing the same cyclical recovery pattern as factory automation after a prolonged downturn, with North American weakness now being offset by strength in Europe and Asia. Curtin noted that against a roughly 2% global truck build environment, TE grew content-driven revenue in the double digits, a gap he expects to persist as supply chains get restocked.
Margins: Volume-Driven Now, But a New Inflation Wave Is Building
Curtin was candid that the company is entering "a new material inflation" cycle tied to Middle East disruptions, on top of prior tariff-driven cost pressure, and that TE is currently in the middle of pushing price increases through to customers to recover those costs. He was explicit that TE does not intend to absorb this inflation. Margin expansion going forward is now being driven primarily by volume leverage rather than the structural restructuring and facility consolidation that characterized the company three years ago, since TE has already achieved roughly 80% regional localization in its manufacturing and supply chain. Segment margins vary modestly, with DDM running a bit higher, aerospace consistently strong, ACL still recovering, and Transportation holding steady around 22%.
Capital Allocation Skews Toward Industrial Bolt-Ons
TE is running close to 100% free cash flow conversion despite stepped-up capital expenditure, which Curtin pegged at roughly 6% of sales this year to fund AI and energy capacity expansion, including two new North American energy facility expansions. Of free cash flow, about one-third returns to shareholders as dividends, which were raised 10% earlier this year, while the remaining two-thirds is split between buybacks and bolt-on M&A concentrated in the Industrial segment, which Curtin identified as the company's primary growth engine going forward. He pointed to last year's $2.3 billion Richards acquisition as evidence that "bolt-on" does not necessarily mean small, and said TE underwrites acquisitions to mid-teen returns over a five-year horizon. The company said it is comfortable with its current portfolio and is not actively evaluating divestitures, though it would consider them if a clear value-creation case emerged.
AI Deployment Internally Focused on Engineering Throughput, Not Headcount Reduction
Asked how TE uses AI internally, Curtin said the company has built an internal cloud focused on manufacturing and engineering applications rather than back-office functions, where it plans to be "a fast follower." The stated goal is increasing engineering velocity and throughput across roughly 500,000 SKUs, and avoiding duplicative design work, rather than reducing engineering headcount, a workforce the company has grown 25% over the past five years.
TE Connectivity Deep Dive: Monetizing Scarcity in the Electrification and AI Supercycle
The Business Model: The Physical Layer of the Digital Economy
TE Connectivity operates as the foundational hardware layer for the electrification and digitization of the global economy. The company designs and manufactures the physical interconnects, terminals, relays, and sensors that transmit power, data, and signals across harsh and demanding environments. Producing over 235 billion units annually, TE Connectivity functions as the nervous system for a vast array of industrial and consumer applications. The business model is predicated on highly engineered, customized solutions rather than commoditized off-the-shelf components, which allows the company to embed itself deeply into the product development cycles of its customers. Revenue is generated through three primary segments: Transportation Solutions, which accounts for nearly 60 percent of total sales; Industrial Solutions, representing roughly 30 percent; and Communications Solutions, which makes up the remainder. By focusing on mission-critical applications where failure is not an option, TE Connectivity secures sticky, recurring revenue streams characterized by long product lifecycles and high barriers to entry.
End Markets, Customers, and the Competitive Landscape
TE Connectivity serves a highly diversified blue-chip customer base spanning automotive original equipment manufacturers, hyperscale data center operators, aerospace and defense contractors, and medical device manufacturers. In the highly fragmented global electrical connectors market, which is projected to approach $158 billion by the next decade, TE Connectivity commands a leading 15 percent to 17 percent total addressable market share. In the rapidly growing electric vehicle connector sub-segment, TE's dominance is even more pronounced, holding over 21 percent of the market. The competitive landscape operates as an oligopoly at the premium end, with TE Connectivity, Amphenol, Molex, and Aptiv controlling the lion's share of high-margin, harsh-environment applications. While Amphenol has historically maintained a heavier concentration in communications and IT datacom markets, TE Connectivity leans heavily into automotive and industrial end markets. This positioning makes TE the undisputed market leader in automotive connectivity, supplying powertrain and advanced driver-assistance systems connectors to nearly every major automaker globally.
The Moat: Asymmetric Risk and High Switching Costs
The economic moat surrounding TE Connectivity is wide, deep, and built on the asymmetry between the cost of its components and the cost of failure. A connector or sensor typically costs anywhere from a few cents to a few dollars, representing a negligible fraction of the total bill of materials for a $50,000 electric vehicle or a $100 million commercial aircraft. However, the failure of that component can result in a catastrophic system outage, a costly product recall, or a fatal accident. This dynamic creates extreme risk aversion among original equipment manufacturers, leading to rigorous, multi-year qualification cycles. Once TE Connectivity is designed into a platform, the customer faces massive switching costs; changing a validated supplier to save a few pennies is an irrational risk. Scale forms the second pillar of TE's moat. With over 90,000 employees, including 9,000 engineers, and more than 100 manufacturing sites globally, the company operates a local-for-local manufacturing strategy. This global footprint, backed by a portfolio of over 15,000 patents and an annual research and development budget exceeding $700 million, allows TE to co-engineer solutions alongside its customers anywhere in the world, creating a barrier to entry that smaller regional players simply cannot overcome.
Industry Dynamics: Secular Tailwinds and Cyclical Threats
TE Connectivity is currently riding two massive secular tailwinds: vehicle electrification and artificial intelligence infrastructure. The transition from internal combustion engines to electric vehicles is a structural growth driver, as electric vehicles require significantly more high-voltage connector and sensor content per vehicle to manage battery systems, inverters, and charging interfaces. Simultaneously, the proliferation of generative artificial intelligence has created unprecedented demand for power delivery and high-speed data transmission in hyperscale data centers. Management recently raised its fiscal 2026 artificial intelligence-related revenue outlook to approach $2.4 billion, reflecting a surge in orders for digital data networks. However, the industry is not immune to cyclical threats. The company's heavy exposure to the transportation sector means top-line growth remains tethered to global automotive production volumes, which can be volatile. Furthermore, inflationary pressures on input costs, particularly oil-based resins, copper, and freight, require constant pricing discipline and operational efficiency to protect gross margins.
Next-Generation Growth Drivers and Disruptive Technologies
To sustain its growth trajectory, TE Connectivity is aggressively rolling out next-generation products tailored to the physical limits of modern computing and mobility. In the data center space, the company is deploying 224G high-speed interconnect solutions, which are critical for the massive bandwidth requirements of generative artificial intelligence clusters. In the automotive sector, TE is driving the miniaturization of coaxial connectors and advancing fluid property sensors that instantly measure viscosity and dielectric constants for industrial automation. The primary disruptive threat to TE's legacy copper business is the architectural shift toward Co-Packaged Optics in high-performance computing, where optical fibers replace copper to reduce heat and latency. To hedge against this technological obsolescence, TE Connectivity has actively acquired passive optical connectivity technologies, ensuring it remains agnostic to the transmission medium. Meanwhile, the threat from new startup entrants remains negligible. The mission-critical nature of harsh-environment connectors, combined with the stringent safety certifications required by automotive and aerospace regulators, makes the physical interconnect market highly resistant to Silicon Valley-style disruption.
Management Track Record and Capital Allocation
Under the leadership of Chief Executive Officer Terrence Curtin, who took the helm in 2017, TE Connectivity has executed a clinical and highly effective portfolio transformation. Management has systematically divested lower-margin, commoditized businesses, such as its submarine communications unit, to focus capital on higher-margin, highly engineered sensors and connectors. This strategic discipline is clearly reflected in the company's margin profile. For the second quarter of fiscal 2026, TE reported record adjusted earnings per share of $2.73 and expanded its adjusted operating margins to 22 percent, a 130 basis point improvement year-over-year despite a mixed macroeconomic environment. Capital allocation has been exceptionally shareholder-friendly. The company consistently converts roughly 100 percent of its net income into free cash flow, generating $3.2 billion in fiscal 2025 alone. This cash generation has funded 14 consecutive years of dividend increases and aggressive share repurchase programs, signaling management's confidence in the durability of the business model and their commitment to long-term value creation.
The Scorecard
TE Connectivity represents a quintessential industrial compounder, operating as the indispensable physical layer for the world's most important technological megatrends. The company's competitive positioning is fortified by immense switching costs, a sprawling global manufacturing footprint, and an asymmetric risk profile that heavily disincentivizes customers from seeking cheaper alternatives. By successfully pivoting its portfolio toward the high-growth vectors of electric vehicles and artificial intelligence infrastructure, management has structurally elevated the company's margin profile and insulated it from the commoditization that plagues lower-end electronics suppliers.
Looking ahead, the investment case hinges on the continued execution of its electrification and data center roadmaps. While near-term cyclicality in automotive production and raw material inflation remain valid watch items, TE Connectivity's record order book and expanding operating margins demonstrate a resilient pricing power. For institutional investors seeking a high-quality, cash-generative vehicle to play the picks-and-shovels side of the artificial intelligence and energy transition supercycles, TE Connectivity offers a highly defensible, structurally advantaged asset with a proven track record of disciplined capital allocation.