Bernstein Taps Amphenol, TE Connectivity as Top Picks for Data Center Growth

Analysts at Bernstein have named Amphenol and TE Connectivity as their top investment opportunities in the interconnect sector, citing sustained demand from the build-out of data center infrastructure. The firm anticipates a hybrid technology environment where both copper and optical solutions play critical roles in connecting servers and networking equipment.

Market Outlook: Copper and Optical Coexistence

Bernstein's analysis projects that copper and optical interconnect technologies will coexist through at least 2028. The firm expects copper to maintain its dominance for intra-rack connections (within a single server rack), while inter-rack applications (connecting different racks) will increasingly shift toward optical solutions.

While high-performance computing for AI training may eventually move away from copper, Bernstein notes that inference workloads are likely to continue relying on copper for intra-rack links. This dynamic is expected to ensure sustained demand for copper components in a significant portion of future data center capacity.

Amphenol: The Pure-Play Leader

Bernstein designated Amphenol (APH) as its top pick, highlighting its market leadership in data center copper interconnects and evidence of gaining market share. The firm believes Amphenol is well-positioned to thrive regardless of how the copper-versus-optical debate evolves, especially following its recent acquisition of CommScope's passive optical business.

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Key points on Amphenol include:

• Valuation: The stock trades at approximately 28 times next-twelve-month earnings, a premium Bernstein considers justified.
• Growth Outlook: The firm projects Amphenol can deliver double-digit growth and margins around 30% over the next five years.
• Recent Performance: Amphenol reported stronger-than-expected second-quarter results, with revenue of $8.8 billion and adjusted earnings of $1.35 per share.

TE Connectivity: The Diversified Value Play

Bernstein characterizes TE Connectivity (TEL) as a high-quality industrial company with significant data center exposure, rather than a pure-play stock. The firm views investor concerns about the transition to optical as "overdone," estimating that only about 10% of fiscal 2028 earnings are at risk if copper content shifts entirely to optical within server racks.

Data centers currently represent about 15% of TE Connectivity’s revenue, and orders in that business have surged 70% year-to-date, according to Bernstein. The company also shows strong momentum in its energy, automation, and commercial vehicle segments. Bernstein sees the stock as an attractive opportunity for value investors with a time horizon beyond 12 months. In its last update, TE Connectivity posted fiscal third-quarter revenue of $5.16 billion and adjusted earnings of $2.94 a share, beating analyst estimates.