TE Connectivity (TEL) Q1 2026: Industrial Orders Surge 40%, AI Pipeline Lifts Guidance Above Cycle
TE Connectivity delivered a record quarter as broad-based industrial strength and accelerating AI demand drove both top- and bottom-line outperformance. Order momentum across every region and segment, especially in digital data networks and energy, is setting up the company to exceed its through-cycle growth targets for fiscal 2026. With capacity investments scaling to meet AI program ramps and resilient pricing power offsetting metal inflation, TEL’s execution signals a structural step-up in earnings quality and visibility.
Summary
- Industrial Demand Broadens: Double-digit order growth in all regions and 40% segment order surge reinforce secular tailwinds.
- AI Pipeline Accelerates: New hyperscale wins and $200M AI revenue raise highlight out-year backlog and operating leverage.
- Margin Expansion Persists: Volume, localization, and disciplined cost pass-through drive record operating margins and cash conversion.
Performance Analysis
TE Connectivity’s Q1 2026 results showcase a business firing on multiple cylinders, with reported sales up 22% and organic growth at 15% year over year, reflecting robust execution across both industrial and transportation segments. The industrial solutions segment was the standout, posting 38% reported and 26% organic sales growth, while operating margins expanded over 500 basis points to 23%—a direct result of volume leverage and operational discipline. Digital Data Networks, the company’s core for hyperscale data and AI connectivity, surged 70% year over year, with AI-related revenues now expected to be several hundred million dollars higher than previously forecast.
Transportation solutions delivered 10% reported and 7% organic growth, with content gains in auto and commercial transportation offsetting a flat sensors business. Free cash flow topped $600 million, and the company returned 100% of that to shareholders via buybacks and dividends, while also stepping up capital expenditures to support future AI-related growth. A 1.1 book-to-bill ratio and record $5.1 billion in orders (up over $1 billion YoY) reinforce confidence in continued momentum, despite typical auto seasonality expected in Q2.
- Industrial Solutions Margin Surge: Operating leverage and mix drove over 500 basis points of margin expansion in the segment.
- AI Revenue Upside: Management raised fiscal 2026 AI revenue forecast by $200 million versus prior outlook.
- Cash Generation and Return: Free cash flow conversion exceeded 100%, supporting both reinvestment and shareholder returns.
Overall, the quarter’s results and forward guide reflect both cyclical recovery and secular growth, with management positioning TEL to outperform its long-term 6-8% through-cycle target in fiscal 2026.
Executive Commentary
"We delivered over 20% sales growth in the first quarter with growth in both segments by driving content growth above market. We had record orders of over $5 billion, and this was growth of more than $1 billion versus the prior year, and this order growth was across our businesses. This growth is being driven by new program awards from our customers, demonstrating the operations and engineering mode that we outlined."
Terrence Curtin, Chief Executive Officer
"We are seeing broadening of growth that Terrence mentioned, 30% plus incremental margins on that sales growth, double-digit EPS growth, and a strong cash generation model with balanced capital returns. Our cash generation and healthy balance sheet give us continued optionality with uses of capital to support investments for future growth, both organically and through M&A."
Heath Mitz, Chief Financial Officer
Strategic Positioning
1. Industrial Solutions as Growth Engine
Industrial Solutions, now the largest and fastest-growing segment, is driving structural margin expansion and secular tailwinds. The segment’s 38% sales growth was powered by digital data networks (DDN, hyperscale data center connectivity), energy (grid hardening and renewables), and automation and connected living (factory automation). The Richards acquisition further strengthened the U.S. utility footprint, and orders grew double digits across all sub-segments, signaling broad-based demand and backlog visibility into 2027.
2. AI Program Ramp and Capacity Investment
AI growth is now a central pillar, with TEL’s pipeline across all major hyperscalers driving both near-term and multi-year upside. Management raised full-year AI revenue estimates by $200 million, citing new program awards and accelerating ramps into the back half of the year and into 2027. This is being met with stepped-up capital expenditures (now guided to 6% of sales) and targeted tooling investments to ensure timely delivery and capture margin as volumes scale.
3. Transportation Resilience and Content Gains
Despite global auto production softness, TEL’s transportation segment continues to outgrow the market through content expansion in data, electrification, and localization. Commercial transportation rebounded 16% organically, led by Asia and Europe, while auto content growth was concentrated in China and Europe. Management remains cautious on North America truck builds, but expects to outpace a modest 2% global truck build increase for the year.
4. Supply Chain Localization and Pricing Power
Supply chain investments and localization have improved resilience and pricing agility, especially as metal inflation and component tightness persist. Management highlighted improved ability to pass through cost increases, particularly in metals, and emphasized the tailored, program-specific nature of AI and energy orders, which supports pricing discipline and customer stickiness.
5. Margin Structure and Incremental Flow-Through
Incremental margins exceeded 30% company-wide, with industrials running even higher, reflecting both mix and operational leverage. Management expects both segments to deliver at or above this threshold for the full year, despite ongoing investment in capacity and engineering. Ongoing footprint reductions and scale benefits in procurement are also supporting sustainable margin improvement.
Key Considerations
TE Connectivity’s Q1 results highlight a company executing well on both secular and cyclical growth vectors, with a broadening demand base and a clear capital allocation strategy.
Key Considerations:
- AI Revenue Mix Shift: Accelerating AI program wins are reshaping the growth profile and capital intensity of the business, with investments tied directly to customer awards and production ramps.
- Industrial Demand Durability: Factory automation, energy, and aerospace/defense are all experiencing sustained order momentum, supporting margin expansion and backlog visibility.
- Auto Seasonality and Regional Divergence: Transportation growth is being driven by Asia and Europe, with North America remaining a watchpoint for commercial vehicle recovery.
- Inflation Management and Pricing Power: Metal inflation remains a significant input cost, but improved pricing agility and supply chain localization are mitigating margin risk.
- Balanced Capital Return: Management’s commitment to 100% free cash flow return, even as CapEx rises, reflects confidence in ongoing cash generation and investment discipline.
Risks
Key risks include continued volatility in global auto production, particularly in North America, and potential delays in AI program ramps if hyperscaler investment cycles shift. Metal and component inflation, while currently being passed through, could pressure margins if market dynamics change or customer pricing resistance increases. The company’s elevated CapEx commitments also raise execution risk if awarded programs are delayed or scaled back.
Forward Outlook
For Q2 2026, TE Connectivity guided to:
- Sales of $4.7 billion (up 13% YoY, 6% organically)
- Adjusted EPS of approximately $2.65 (up 20% YoY)
For full-year 2026, management raised its outlook above the 6-8% through-cycle growth target:
- Sales growth ahead of historical range, with margin expansion and double-digit EPS growth
Management highlighted:
- Industrial Solutions segment growth offsetting typical auto seasonality in Q2
- AI program ramps and energy backlog underpinning second-half acceleration
Takeaways
TE Connectivity’s Q1 print and commentary signal a multi-year step-up in both growth and earnings quality, with secular demand in AI, energy, and automation now driving the business model. Margin expansion, cash conversion, and capital discipline are all tracking above historical norms.
- Industrial and AI Outperformance: Orders and backlog in industrial and AI-related businesses are set to drive above-cycle growth and extend visibility into 2027.
- Margin Structure Resiliency: Price pass-through, supply chain localization, and operational leverage are sustaining record margins despite input inflation.
- Watch for Execution on AI Ramps: Investors should monitor CapEx deployment, program-specific delivery, and the timing of AI revenue conversion into margin and cash flow over the next several quarters.
Conclusion
TE Connectivity’s Q1 2026 results mark a decisive pivot toward structurally higher growth and margin, anchored by broad-based industrial demand and accelerating AI connectivity programs. Order strength and disciplined execution position TEL to outperform its historical benchmarks, with key watchpoints around auto production and AI ramp execution as the year unfolds.
Industry Read-Through
TE Connectivity’s results underscore the intensifying secular demand for data and power connectivity across industrial, energy, and transportation markets, with hyperscale AI investment cycles now a critical growth engine for the sector. Peers in electrical components, automation, and industrial technology should expect similar tailwinds as global infrastructure upgrades and next-gen data center builds accelerate. The company’s ability to pass through inflation and localize supply chains also sets a benchmark for operational resilience in a volatile macro environment. End-market cyclicality remains, but secular content growth is reshaping the competitive landscape for connectivity and automation suppliers.