Buried beneath headlines about electric vehicles and inventory destocking in TE Connectivity's recent earnings calls lies a seismic shift. While analysts dissect the company's performance in its traditional sectors, a silent giant is emerging within TE Connectivity: a dominant player in the burgeoning Artificial Intelligence (AI) market.

TE Connectivity's role in AI, while subtle, is fundamental. They are the unsung heroes ensuring the high-speed, low-latency connectivity vital for AI workloads. As Terrence Curtin, CEO, pointed out, their content in accelerated compute AI platforms is a staggering 50% higher than in traditional compute servers. This isn't just a side hustle for TE Connectivity; it's a deliberate, strategic move towards becoming a cornerstone of the AI infrastructure.

What's particularly striking is the company's projected growth trajectory in AI. In their Q1 2024 earnings call, TE Connectivity projected $200 million in revenue from AI applications. By Q2, they confidently doubled that figure to $400 million for the following year, with a clear path to achieving an astonishing $1 billion in annual revenue within a few years. This dramatic increase, driven by design win momentum and robust customer demand, signals a company not merely participating in the AI boom, but actively shaping its future.

Interestingly, this focus on AI isn't reflected in the market's current perception of TE Connectivity. Analyst questions during the earnings calls primarily revolved around EV penetration, destocking trends, and pricing dynamics. While these are undoubtedly important aspects of the company's business, the muted attention given to the AI segment creates a unique opportunity for astute investors.

Projected AI Revenue Growth

Looking beyond the headline figures reveals a compelling hypothesis. The current undervaluation of TE Connectivity's AI potential presents a lucrative opportunity. Consider this: while their current market cap hovers around $46.2 billion, their projected AI revenue alone is set to reach $1 billion within a few years. This represents a significant portion of their overall revenue and signals a substantial value driver that has yet to be fully recognized by the market.

The company's cash flow performance further strengthens this hypothesis. With record free cash flow in both Q1 2024 and Q2 2024, TE Connectivity is demonstrably capable of generating the capital needed to fuel its ambitious AI expansion plans. This strong cash flow generation, coupled with their disciplined capital allocation strategy, provides a solid foundation for sustained growth in the AI sector.

Free Cash Flow Performance

The following chart illustrates TE Connectivity's record free cash flow performance in the first half of fiscal year 2024.

But what truly sets TE Connectivity apart is their deep engagement within the AI ecosystem. Unlike companies solely focused on either processor technology or cloud infrastructure, TE Connectivity collaborates with both hyperscale customers and leading semiconductor companies. They are active participants in developing reference designs and ensuring their solutions are seamlessly integrated into the next generation of AI platforms. This broad engagement across the AI landscape places TE Connectivity in a prime position to capitalize on the growth of this dynamic market.

"Fun Fact: Did you know TE Connectivity connectors are used in the Mars Rover? They're also in the International Space Station. This is a company built on tackling complex engineering challenges, and their move into AI is a natural progression of that innovative spirit."

The takeaway is clear. While TE Connectivity may be currently perceived as an EV play, their emergence as a silent AI giant is undeniable. The company's strategic positioning, robust financial performance, and deep engagement within the AI ecosystem paint a compelling picture of future growth. As the market catches up to this reality, investors who recognized this silent shift stand to benefit significantly.