Data Centers Are Running Out of Transformers. Here's the Industrial Stock With a 3-Year Backlog.
2026-10-08 12:15
•Catie Hogan •The Motley Fool
•••••• •• Axe Cap view
Transformer shortage tightens AI infrastructure race
Record demand for power transformers boosts Eaton, a key player in data center power solutions.
Power transformers, those unsung heroes ensuring data centers stay powered and cool, have become a critical bottleneck in the AI boom. Eaton’s Q2 results show a 21% sales jump, driven by a 65% increase in data center revenue. Their electrical segment backlog doubling year-over-year signals strong demand but also potential supply delays. For South African investors, this taps into the growing rand weakness risk from higher USD tech hardware prices, but more importantly, it hints at opportunities in local infrastructure and energy plays like Barloworld or even Eskom-related sectors once investment picks up. Eaton’s focus on liquid cooling and electrical equipment suggests industrial companies connected to infrastructure upgrades can expect sustained demand. However, if AI growth stalls or supply chains ease, Eaton’s pricing power could diminish. Given the link to global supply chains, the USD/ZAR rate will remain critical as a risk factor in trading global tech exposures or related local industrial investments. this is just our opinion and not financial advice
Watch USD/ZAR carefully, as a weaker rand will pressure industrial stocks tied to imports. South African industrials with infrastructure exposure, like Barloworld, are worth watching for incremental demand from energy upgrades, but patience is key until local capital expenditure picks up.
- Eaton (ETN)
- Barloworld
- USD/ZAR
- AI investment slowdown
- improvement in transformer supply easing demand
6/10
Power transformers have become a critical bottleneck in the AI race, with major manufacturers like Eaton experiencing unprecedented demand and multi-year backlogs. Eaton reported record Q2 sales of $8.5 billion (up 21% YoY) with data center revenue growing 65%. The company is separating its Mobility division and combining it with Dana Incorporated to focus on higher-growth electrical and aerospace businesses.
Our take is based on reporting first published by The Motley Fool.