Electrical Equipment and Power Management: Eaton, ABB, and Schneider

Introduction

Electrical equipment has undergone the most dramatic valuation re-rating of any sub-segment within capital goods over the past five years. Companies like Eaton, ABB, and Schneider Electric, which were historically valued as mid-cycle capital goods businesses at 10-13x EBITDA, now trade at 16-22x as the market recognizes that electrification, grid modernization, and data center power demand are creating structural growth that transcends the traditional capex cycle.

Eaton reported record third-quarter 2025 results with accelerating orders and continued backlog growth, driven by data center, utility, and aerospace end markets. Management guided high single- to low double-digit organic revenue growth for 2025, a rate more typically associated with technology companies than industrial manufacturers. This kind of performance illustrates why electrical equipment has become one of the most closely watched and actively covered sub-sectors in industrials banking.

Electrical equipment companies manufacture the products that distribute, manage, and control electrical power: circuit breakers, switchgear, transformers, uninterruptible power supplies (UPS), power distribution units (PDUs), motor controls, and building management systems. These products are installed in every type of structure (residential, commercial, industrial, data center, utility) and have useful lives of 20-40 years.

Electrification Megatrend

The structural increase in electricity's share of total energy consumption, driven by the transition from fossil fuel-powered systems to electric alternatives (EVs, heat pumps, induction cooking), the build-out of renewable energy generation and storage, the expansion of data center capacity for AI and cloud computing, and the modernization of aging electrical grids to handle increased load and bidirectional power flow. The electrification megatrend creates multi-decade demand growth for electrical equipment that is largely independent of the economic cycle, which is why it represents a secular growth driver rather than a cyclical tailwind.

Four converging demand drivers are creating the secular growth thesis:

Data center power demand. The global data center power market is expected to grow from $35 billion in 2025 to over $50 billion by 2030 (7.5% CAGR), driven by AI workloads, cloud computing expansion, and hyperscale facility construction. Eaton predicts that data center and distributed IT equipment will account for approximately 17% of its total sales by the end of 2025, up from a much smaller share just a few years ago. The company invested over $50 million in a new Virginia manufacturing facility specifically for data center power distribution technologies, reflecting the scale of the opportunity.

Grid modernization and utility investment. The US electrical grid is aging (average transformer age exceeds 40 years) and must be upgraded to handle increased load from electrification, integrate renewable energy sources, and improve resilience against extreme weather events. Utility investment in transmission and distribution infrastructure is growing at high single digits annually, creating sustained demand for transformers, switchgear, and grid management equipment.

EV charging infrastructure. The build-out of EV charging networks requires electrical distribution equipment at every charging station. Each DC fast-charging station requires significant electrical infrastructure (transformers, switchgear, power management systems) that electrical equipment companies supply.

Building electrification. Regulatory mandates requiring electrification of building HVAC and water heating systems (replacing gas furnaces and boilers with heat pumps) are creating incremental electrical load that requires upgraded building electrical systems, benefiting the entire electrical equipment value chain.

Eaton has been the purest beneficiary of the electrification thesis among the three, with its Electrical Americas and Electrical Global segments generating the strongest organic growth and backlog expansion. Eaton's electrical backlog exited 2024 at record highs, underpinned by multi-year hyperscale data center programs and utility modernization contracts. The company's "grid to chip" positioning (providing electrical infrastructure from the utility grid all the way to the server rack) is a compelling competitive narrative.

Schneider Electric is the global market leader in data center power with its EcoStruxure platform, delivering end-to-end solutions including UPS systems, power distribution units, and intelligent energy management systems. Schneider's scale advantage and software-integrated approach position it as the preferred vendor for hyperscale data center operators.

ABB competes across electrification, robotics, motion, and process automation. Its Electrification division has seen double-digit order growth in data center solutions, though ABB's diversified portfolio (which includes industrial automation and robotics) means that data center exposure is diluted at the consolidated level. ABB acquired a minority stake in DG Matrix in March 2025 to accelerate commercialization of solid-state power electronics for AI data centers.

The electrical equipment re-rating has practical implications for how industrials bankers approach the sub-sector.

Comp set evolution. Electrical equipment companies should no longer be blended into general capital goods comp sets. Their valuation multiples reflect a secular growth premium that standard capital goods companies do not possess. A comp set for Eaton should include Schneider Electric, ABB's Electrification division, and potentially Vertiv (data center thermal management), not Caterpillar or Deere.

Sell-side narrative for electrical exposure. When running a sell-side process for any company with electrical equipment exposure (even if it is a secondary business line), the banker should quantify the electrification-driven revenue component and argue for a premium multiple on that portion. A transformer manufacturer growing at 12% because of grid modernization demand has a fundamentally different value than one growing at 12% because of a temporary construction boom.

M&A activity. Electrical equipment M&A is accelerating as both strategic acquirers and PE sponsors pursue companies positioned to benefit from the electrification megatrend. Acquisitions of specialty transformer manufacturers, data center power companies, EV charging infrastructure businesses, and grid technology companies are generating consistent deal flow for industrials bankers with electrical equipment coverage.