Al Root

Electrical-equipment supplier Eaton has benefited from the artificial intelligence boom and said it can continue to gain, even as AI gets cheaper.

Friday, Eaton reported fourth-quarter earnings per share of $2.83, at the high end of the range it had predicted. Wall Street's consensus forecast was for $2.81.

In the current quarter, Eaton says, first-quarter earnings should land around $2.70, which would put them in line with Wall Street estimates. Management is calling for full-year EPS of around $12, also in accordance with expectations. That would amount a gain of 11% from the $10.80 earned in 2024.

The results look rock solid, though shares were down 3.7% in early trading at $314.98. The S&P 500 and Dow Jones Industrial Average were up 0.6% and 0.1%, respectively.

The drop left shares down about 14% for the week. The stock dropped almost 16% on Monday after viral posts suggested that Chinese AI app DeepSeek was developed for millions, far less than what apps such as OpenAI's ChatGPT cost.

The potential for cheaper AI had investors wondering if spending on infrastructure by the likes of Microsoft and Meta Platforms could fall. Those companies' outlays for data centers become revenue for suppliers of electrical components such as Eaton.

But the positive side of cheaper AI is that the technology would be used in more AI applications. It could mean even more electricity would be needed for AI data centers, AI-trained robots, and AI-trained self-driving electric vehicles.

"Any notion [the data center] market will slow down is simply not consistent with the data," said CEO Craig Arnold on Eaton's earnings conference call. Innovation is good for growth, he added.

Arnold pointed out that the backlog of megaprojects -- Eaton defines them as building projects with a budget north of $1 billion -- hit $1.9 trillion at the end of 2024.

The total grew 33% from 2024. Only 15% of projects have been started and Eaton is expecting a record number of starts in 2025.

Cancellation rates are worth watching, but they are running below new orders. What is more at current construction rates, it will take seven years to work through the existing backlog.

Overall, Eaton stands behind its forecast for double-digit annual data-center growth for the foreseeable future.

That might not soothe all investor fears, but it could help. Time will tell how falling AI costs affect different industries. Eaton is confident it will benefit.

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

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January 31, 2025 13:13 ET (18:13 GMT)

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