Evercore ISI reiterates TE Connectivity stock rating on AI growth By Investing.com

TE Connectivity reported March-quarter revenue of $4.74 billion and EPS of $2.73, roughly in line with estimates and above its original guidance of $4.7 billion and $2.65. The company raised its fiscal 2026 AI revenue target to $2.35 billion-$2.4 billion from $2.2 billion, and guided June-quarter revenue/EPS to $5.0 billion and $2.83 versus Street forecasts of $4.93 billion and $2.80. Evercore ISI reiterated an Outperform rating with a $260 target as the stock has already returned 85% over the past year.

Analysis

The market is treating TEL less like a cyclical industrial and more like a scarce “pick-and-shovel” AI infrastructure name. The real second-order effect is that TE’s raised AI revenue outlook likely tightens investor attention on suppliers with exposure to interconnect, power distribution, and thermal management, while more generic transport-facing peers risk being ignored despite similar end-market recovery potential. That re-rating dynamic can persist for months because the market is rewarding visible AI backlog conversion, not just current-quarter beats.

The key nuance is margin mix: Data Center Networking and Energy are still expanding at a rate that can offset softer transportation demand, but the company is explicitly choosing reinvestment over near-term margin maximization. That creates a window where headline EPS can stay solid while quarterly margin compression introduces volatility, especially if investors extrapolate one or two quarters of slightly lower margins into a longer-term trend. If orders decelerate even modestly, the stock’s premium could compress quickly given how much of the thesis is now predicated on sustained AI-related growth.

Consensus may be underestimating how much of TEL’s upside is already being monetized by the market. After a strong run, the stock no longer needs to disappoint much for the multiple to de-rate; the risk/reward shifts from fundamental surprise to execution quality. The contrarian angle is that a “good but not great” quarter can still be enough to trigger a 10-15% pullback if AI bookings flatten or management sounds less confident on the next two quarters, even if long-term demand remains intact.

Key Decisions for Investors

• Hold a tactical long TEL only on pullbacks into the post-earnings gap, targeting a 2-3 month horizon; upside is now mostly multiple expansion prevention, while downside risk is a 10-15% de-rating if AI order momentum cools.
• For investors already long TEL, buy 1-2 quarter-dated put spreads to protect gains; the payoff is attractive because the primary risk is a sentiment reset, not a fundamental collapse.
• Pair trade: long TEL / short a lower-quality transport industrial with weaker pricing power over the next 1-2 quarters; TEL’s AI mix gives it a cleaner growth narrative and better margin durability.
• If TEL rallies back toward the upper end of target ranges, trim 25-35% and redeploy into less-owned AI infrastructure suppliers where the market has not fully capitalized the growth inflection.
• Monitor management commentary on pipeline conversion in Data Center Networking over the next 1-2 earnings cycles; if that metric softens, exit longs aggressively because the stock’s multiple is now highly sensitive to AI sentiment.