Why Eaton and GE Vernova are Beating the AI Chip Stocks

Key Takeaways:

• Eaton and GE Vernova, which make electrical and power-generation equipment, are outrunning AI chip stocks because electricity, not silicon, has become the real bottleneck for data centers.
• Both companies posted record backlogs and raised guidance, with GE Vernova’s orders up 88% year over year and Eaton’s electrical backlog up 48%.
• Eaton trades closer to its historical valuation range, while GE Vernova’s bigger implied upside comes with a much richer price tag already built in.

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Everyone wants the next Nvidia. But two of the best-performing stocks tied to the AI boom this year don’t make a single chip.

Eaton Corporation (ETN) and GE Vernova (GEV) build the electrical gear and power plants that keep data centers running. Neither company designs processors.

Neither ships to gamers or cloud providers directly for compute. Yet both stocks have delivered results that would make chipmakers jealous, and the reason comes down to one word: electricity.

AI’s bottleneck has moved. It used to be chips. Now it’s power. And when a resource becomes the constraint, the companies that supply it tend to capture outsized value. That’s exactly what’s happening here.

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The unglamorous businesses behind the AI buildout

Eaton is a power management company. It makes electrical distribution equipment, circuit protection products, switchgear, and increasingly, cooling systems for data centers. Think of it as the plumbing and wiring that moves electricity safely from the grid into a server rack.

GE Vernova is even more foundational. It builds gas turbines, grid equipment, and transformers, the machinery that generates power and moves it across the grid before it ever reaches a data center’s front door.

Neither business sounds exciting on paper. But data centers cannot run without them, and that’s the whole point.

During Eaton’s first-quarter 2026 earnings call, chief executive Paulo Sternadt described the scale of demand hitting the business, according to a company statement.

“We continue to see tremendous strength,” he said. “Rolling 12-month orders are up in all businesses, 42% in Electrical Americas and 13% in both Electrical Global and Aerospace.” He added that data center orders alone jumped 240% year over year.

GE Vernova’s numbers tell a similar story. Chief executive Scott Strazik said on the company’s second-quarter 2026 call that “our total backlog has reached $176 billion with improving margins,” up $13 billion in a single quarter, according to a company statement.

Growth and backlogs show the demand is real

Backlog is the key word here. It represents orders booked but not yet delivered, and it’s the clearest sign of how much future revenue is already locked in.

Eaton posted record first-quarter 2026 revenue of $7.5 billion and record segment profit of $1.7 billion, with margins of 22.7%.

Its electrical backlog jumped 48% year over year. Revenue has climbed steadily too, from $19.63 billion in 2021 to $27.45 billion in 2025, with operating income more than doubling over that stretch to $5.30 billion.

GE Vernova’s growth is even sharper. Second-quarter orders came in at $24.2 billion, an 88% jump year over year, with a book-to-bill ratio of roughly two times.

That means the company booked twice as much in new orders as it delivered in revenue that quarter. Annual revenue has grown from $33.01 billion in 2021 to $38.07 billion in 2025, while operating income swung from a loss of $0.38 billion to a positive $2.14 billion.

Chief financial officer Ken Parks explained why the cash is flowing in so fast. “The strong adjusted EBITDA and working capital management drove $5.1 billion of free cash flow in the second quarter,” he said, according to a company statement, pointing to customer down payments tied to the surge in orders.

Both companies are also raising guidance.

Eaton lifted its full-year adjusted earnings per share midpoint to $13.28. GE Vernova raised its 2026 free cash flow guidance to between $11.5 billion and $12.5 billion, nearly double its prior outlook.

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What the valuations say about how much is already priced in

Here’s where investors need to slow down.

Eaton trades around $361.88 a share, with a target price near $572.65 based on mid-case assumptions, implying a potential total return of about 58.2% over roughly four years, or about 10.9% annualized.

Its forward price-to-earnings ratio sits at 25.72 times, below its five-year high of 32.53 times but well above its historical mean of 20.84 times.

GE Vernova is a different story. The stock trades near $900.28, with a mid-case target of $2,898.75, implying a potential return of 222% over the same period, or about 30.2% annualized.

But its forward P/E of 42.30 times, while below its own high of 75.07 times, still sits well under its mean of 53.51 times, suggesting the market has already priced in years of growth.

That gap matters. Eaton looks like a steadier, more reasonably priced way to play the power buildout. GE Vernova offers a bigger potential payoff, but only if its ambitious backlog conversion and margin expansion plans actually play out as promised.

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Can the outperformance continue?

The case for more upside rests on a simple idea both management teams keep repeating: demand for electricity is outpacing the industry’s ability to build capacity.

Sternadt pointed to 32 gigawatts of data center capacity under construction in the U.S., with a backlog equal to 12 years of 2025 build rates.

Strazik said GE Vernova expects to be mostly sold out of gas turbine capacity through 2030.

That kind of visibility is rare. It’s also why these picks-and-shovels power plays have quietly outrun the flashier chip stocks this year.

Chips can be swapped for a faster model next year. Power plants and electrical grids take years to build. Whoever controls that scarce capacity holds the leverage, and for now, that’s Eaton and GE Vernova.

Investors chasing the next AI winner might want to look past the chip aisle and toward the utility closet instead.

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Disclaimer:

Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!