TE Connectivity plc (TEL) | The Buildout — AI Infrastructure
The Verdict
TE Connectivity makes the physical interconnection layer — terminals, connectors, cable assemblies, sensors, relays, heat-shrink tubing, filters, wire and cable — that moves power, signal, and data inside vehicles, factories, aircraft, medical devices, and AI data centers. In the AI buildout, its high-speed copper and power connectivity sits in and around the rack, while its energy products connect the generation, transmission, and grid infrastructure that brings power to data centers.
| Market Cap | — |
| Revenue (TTM) | $19.1B |
| Revenue Growth | +15.5% |
| EBITDA Margin (TTM) | 24.3% |
| Net Debt | $4.4B |
| Earnings Beats | 7 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Q3 FY2026 orders reached a record $5.7 billion, up 27% YoY and 7% sequentially, with book-to-bill of 1.1.
- Management has guided FY2026 AI/cloud revenue to approach $2.4 billion.
- Digital Data Networks orders are up over 70% year to date, with management saying AI orders are building backlog into FY2027.
- Energy organic sales grew 33% in Q3 FY2026; management estimates about a third of the energy market growth where TEL is positioned is driven by data center build-outs.
- Full-year FY2026 sales growth was raised to approximately 15%, representing more than $2.5 billion of incremental revenue.
What We’re Watching
- DDN reported revenue growth decelerated from roughly 70% YoY in Q1 FY2026 to approximately 50% in Q2 and 34% in Q3, even as orders accelerated.
- Energy is project-lumpy: organic growth swung from +11% in Q2 FY2026 to +33% in Q3; management frames it as a mid-teens grower.
- Management declines to name AI/hyperscaler customers, so AI revenue concentration cannot be verified externally.
- Meaningful optical revenue from RAM Photonics is not expected until 2028 and beyond; TEL is not a major player in scale-out optical today.
The thesis looks intact and strengthening on the order and backlog evidence, with management raising full-year guidance and the AI target shifting left. The open question is whether DDN's record order growth converts into reported revenue at the pace implied, or whether the decelerating YoY revenue rate signals a wider order-to-revenue lag.
Earnings Beat
Q3 FY2026 net sales were a record $5.16 billion, up 14% reported and 12% organic, with gross margin of 35.6%. Orders hit a record $5.7 billion, up 27% YoY and 7% sequentially, lifting book-to-bill to 1.1.
| Metric | Q3 FY2026 | Q2 FY2026 | Q3 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $5.2B | $4.7B | $4.5B | +13.8% |
| Gross margin | 35.6% | 36.8% | 35.3% | +30bps |
| EBITDA | $1.2B | $1.2B | $1.1B | +11.0% |
| EPS | $2.55 | $2.90 | $2.14 | +19.2% |
| Orders | $5.7B | $5.3B | n/a | +27% YoY |
| Book-to-bill | 1.1 | 1.12 | n/a | — |
We are at the intersection of the largest technology and infrastructure investment cycle that’s taking place around the world.— Terrence Curtin, Chief Executive Officer, July 22, 2026
Management tone: Management's tone shifted from already confident in Q2 to more broad-based confidence in Q3, supported by record sales, orders, and a raised full-year guide. Executives answered directly on order composition and Energy lumpiness, declined customer-specific AI detail, and reframed copper versus optical as 'copper and optical.'
Management Guidance
For Q4 FY2026, management guided sales of approximately $5.25 billion, up 11% YoY, and adjusted EPS of approximately $3.05. Full-year FY2026 sales growth was raised to approximately 15%, representing more than $2.5 billion of incremental revenue, and adjusted EPS growth to approximately 23%. Management reaffirmed free cash flow conversion of approximately 100%, restructuring charges of approximately $100 million, and CapEx of approximately 6% of sales. The Q4 adjusted effective tax rate is expected at 22–23%, with the cash tax rate expected to remain well below the adjusted effective tax rate.
Trajectory
The computed trajectory signal is decelerating, but Q3 FY2026 revenue still rose 8.8% sequentially to $5,160 million after smaller QoQ gains earlier in the fiscal year. Margin trends are expanding: the computed window shows gross margin up 360 basis points, operating margin up 270 basis points, and EBITDA margin up 240 basis points. TTM free cash flow converts at 121% of net income, supported by Industrial's 21% organic growth in Q3 while Transportation grew 5% organic.
The Model
The model projects FY+1 revenue of $19,550 million and EBITDA of $5,298 million, a 27.1% margin, anchored by the record order book and the shift of AI/cloud revenue into FY2027. FY+2 revenue rises to $21,800 million with EBITDA of $6,104 million, a 28.0% margin, as order conversion, the broader industrial recovery, and the Astrodyne TDI acquisition contribute.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $17.1B | $19.6B | $21.8B |
| YoY Growth | — | +14.4% | +11.5% |
| EBITDA | $3.9B | $5.3B | $6.1B |
| EBITDA Margin | 22.9% | 27.1% | 28.0% |
Projections are the median of 5 independent model runs. The model’s revenue sits 2.8% above analyst consensus.
For Q4 FY2026, management guided sales of approximately $5.25 billion, up 11% YoY, and adjusted EPS of approximately $3.05. Full-year FY2026 sales growth was raised to approximately 15%, representing more than $2.5 billion of incremental revenue, and adjusted EPS growth to approximately 23%. Management reaffirmed free cash flow conversion of approximately 100%, restructuring charges of approximately $100 million, and CapEx of approximately 6% of sales. The Q4 adjusted effective tax rate is expected at 22–23%, with the cash tax rate expected to remain well below the adjusted effective tax rate.
What Could Go Right — and Wrong
- Q4 DDN revenue grows sequentially, confirming order-to-revenue conversion and setting up FY2027 as a major growth year.
- Higher-voltage rack power architectures scale, lifting TEL's power-connectivity content to as much as 1.5x traditional power content.
- RAM Photonics or other optical connectivity wins a significant scale-out or co-packaged optics design before the 2028+ timeline.
- Energy holds its mid-teens growth framing on data center power build-outs and grid hardening across multiple years.
- Customer or architecture disclosure shows AI revenue spread across multiple hyperscaler and ASIC programs, reducing concentration opacity.
- DDN revenue converts slower than orders: Q4 DDN fails to grow sequentially, or FY2027 starts with another sharp YoY deceleration.
- A major customer shifts from copper to optical rack-scale or another interconnect vendor, hitting the core DDN growth engine.
- Energy growth reverts to low-teens or below, suggesting Q3 +33% organic was project timing rather than durable grid build-out.
- Broadening input inflation in oil-based resins, freight, and metals outruns pricing and compresses Industrial margins below the 30%-plus flow-through.
- Global auto production weakens further and content outperformance sits at the low end of the 4–6 point range, pressuring Transportation revenue and margins.
Looking Ahead
Over the next 12 months, the key signposts are Q4 FY2026 DDN sequential growth, full-year FY2026 sales growth of approximately 15%, and the Astrodyne TDI close expected by end of calendar 2026. Management frames record backlog as the growth indicator for fiscal 2027. The RAM Photonics optical opportunity remains a 2028-and-beyond event, with near-term work focused on scaling manufacturing and engineering.
- September 2026Citi and Jefferies conferences — CEO scheduled for Citi Global TMT and Jefferies Global Industrial conferences.
- Q4 FY2026DDN sequential revenue — Q4 DDN sequential revenue tests whether record orders convert into reported revenue.
- End of calendar 2026Astrodyne TDI close — Expected close adds more than $250 million annual sales to Industrial Solutions.
- FY2027Record backlog conversion — Management calls record backlog a strong growth indicator for fiscal 2027.
- 2028 and beyondRAM Photonics optical revenue — Meaningful optical/FAU revenue expected in this timeframe.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $15.8B | $17.1B | $19.1B | +7.9% |
| Gross Margin | 34.5% | 34.5% | 35.4% | 2bps |
| EBITDA | $3.7B | $3.9B | $33.8B | +5.4% |
| EBITDA Margin | 23.5% | 22.9% | 24.3% | 53bps |
| Net Income | $3.2B | $1.8B | $3.0B | -42.3% |
| Free Cash Flow | $2.8B | $3.2B | $21.3B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)35.4%
- EBITDA Margin (TTM)24.3%
- Net Margin (TTM)15.8%
- ROIC16.4%
- FCF Conversion78.1%
- SBC / Revenue0.9%
The Company
TE Connectivity is a global industrial technology company whose products distribute power, signal, and data. It does not make semiconductors, servers, switches, or electricity; it supplies the physical interconnection layer — terminals, connectors, cable assemblies, sensors, relays, heat-shrink tubing, filters, wire and cable, and application tooling — across transportation, energy networks, factories, aircraft, medical devices, and data centers enabling AI.
The company operates through two reported segments: Transportation Solutions and Industrial Solutions. Q3 FY2026 revenue was evenly split between the two. Management says capacity and CapEx are tied to awarded specific AI programs, not speculative investment. The supplied 10-K profile includes no plant-level detail.
Business Segments
Competitive Landscape
The FY2025 10-K names two separate competitor sets: Yazaki, Aptiv, Sumitomo, Sensata, Honeywell, Molex, and Amphenol in Transportation Solutions; and Amphenol, Hubbell, Carlisle Companies, Integer Holdings, Molex, Omron, JST, and Korea Electric Terminal in Industrial Solutions. Management argues the AI rack moat is the combination of data and power connectivity in one architecture conversation, and says customers value someone that understands both the power chain and signal chain.
- AmphenolNamed in both segment competitor lists; not discussed further in the supplied material.
- MolexNamed in both segment competitor lists; not discussed further in the supplied material.
- YazakiNamed in Transportation Solutions competitor list; not discussed.
- AptivNamed in Transportation Solutions competitor list; not discussed.
- HubbellNamed in Industrial Solutions competitor list; not discussed.
Supply Chain
TE Connectivity sits between raw-material suppliers and the end markets building AI racks and grid infrastructure. Management declines to confirm specific AI/hyperscaler customers; the Wiring dataset relationships are inferred, not verified.
More on TEL: Earnings recap