Al Root

The artificial-intelligence trade responsible for much of the stock market's recent gains looks far from running out of steam.

Companies are still spending billions.

Electrical components maker TE Connectivity announced Wednesday it was buying Richards Manufacturing from private-equity player Oaktree Capital.

New Jersey-based Richards provides utility grid products with "differentiated positions" in medium-voltage and network products. Generally speaking, high voltage is for utilities, low voltage is for homes, and medium voltage is for industrial applications, like data centers.

"One of the key pillars of our strategy is investing in long-term secular growth trends," said TE Connectivity CEO Terrence Curtin in a news release. "We have been strategically investing in our energy business over the past several years ... we've benefited from our focus on utility-scale renewables and grid reliability by providing our customers with innovative products required for the ongoing evolution of the energy grid."

Demand for electricity is growing again, after decades of stagnation, thanks in part to power-hungry AI data centers. TE's AI-related business is expected to be roughly $600 million in fiscak 2025, up about 100% from fiscal 2024.

The company's AI business relates, unsurprisingly, to connectivity. Nvidia's chips have to plug into things, and TE makes the connectors. Richard's products should give TE more ways to serve its customers.

TE Connectivity will pay about $2.3 billion for Richards. It will pay for the company with cash on hand and debt.

It's a nice-sized deal. TE's market value is about $45 billion, and Wall Street estimates about $3.9 billion in calendar year 2025 earnings before interest, taxes, deprecation, and amortization, or Ebitda.

Richard's sales are in the range of $400 million, and Ebitda margins are in the "mid-30 percent range." TE looks to be paying about 16 times Ebitda before any synergies.

TE's confidence in electricity demand growth can help soothe investor nerves after the Chinese AI app DeepSeek sent shockwaves through the industry. The app allegedly was designed for a fraction of what competing apps cost and with less sophisticated computers.

DeepSeek's emergence raised the possibility that useful AI wouldn't require the billions of dollars of amounts of electricity previously expected.

DeepSeek hasn't really put a dent in anyone's AI spending plans. Data center operators Microsoft, Meta Platforms, Amazon.com, and Alphabet plan to spend $300 billion on new plants and equipment in 2025, according to Wall Street estimates,. That's up about 33% from 2024.

Some of that spending eventually becomes revenue for the likes of TE and Richards.

Coming into Wednesday, TE Connectivity has risen about 4% over the past 12 months. That lags the comparable 21% gain for the S&P 500. TE's AI business is booming, but it serves many markets, including the car and general manufacturing industries. Those businesses have been slower recently.

Write to Al Root at allen.root@dowjones.com

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February 12, 2025 06:47 ET (11:47 GMT)

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