Amphenol benefits from AI infrastructure buildout due to high content per rack and diversified business model.

company, not a household name, a company called Amphenol, and that the ticker for that is AP. So this is a business that's very much focused on the physical layer of tech infrastructure quite literally.

So Amphenol designs and manufactures uh microscopic pins, precision plugs, uh high-speed copper cables. So this very unglamorous but essential hardware connectors that they sell to the enterprise server builders as well as auto manufacturers globally.

So they have a a diversified business outside of you know the AI and data center boom.

um something we've talked about you know the physical limitations that we are seeing in the buildout are one sort of gatekeeper of the AI boom but it's also the physical limitations on data transmission so you know when cloud giants are buying Nvidia graphics cards those chips can't communicate without very uh specialized precise cables connectors configurations that's what Amphanol sells they are the leader and have been for a long time uh in this hardware uh niche and so that makes them a essential utility provider um in this current time and I think as well uh moving forward

the other thing that's I think really um compelling about their business model is that their total dollar content per server rack scales up as chips get more powerful so with the old server setups you had traditional copper wiring it was more than enough to handle standard web traffic but in today's uh you know data movement requirements um that is not enough um if a single connector experienc experiences even minor signal degradation, you can have an entire training model that degrades instantly.

And so this is giving amphenol pricing power because you know obviously hyperscalers they're not going to cut corners on the vital hardware interfaces that are protecting their compute clusters.

So, you know, one of the things that I find fascinating about this is whether a data center operator decides to build their infrastructure around Nvidia silicone and custom cloud processors or even alternative platforms, they're still going to require a company like Amphenol and often Amphanol to purchase the copper the fiber optic pathways to tie that facility together.

Just to put a few numbers on this, the recent quarter they delivered revenue of about $4 billion. That was an 18% year-over-year growth rate, operating margin in the low 20s.

Um, you know, you can change the AI model to a closed one to an open one or the geographic location, but you can't change the physical reality that high-speed signals have to move between the chips, the servers, and the racks.

And as a primary partner for architectures like Nvidia's platforms, empanel essentially gets paid a toll on every piece of physical infrastructure that's deployed.

Um, and advanced nodes, they don't just require a few more briars. They use very dense, high-speed cabling, fiber optics, and advanced distribution hardware. And Amphanol sells vastly more component value or content per AI rack than they ever did for uh the traditional cloud servers.

Um, and they also have a global manufacturing footprint. So they're able to supply uh the big tech companies but also the localized sovereign supply chains seamlessly as sovereign AI is a huge trend that we're seeing.

So interesting business maybe one that's less talked about in the AI revolution. One of those kind of quietly essential infrastructure plays on the AI race.

>> Yeah, you know I wasn't very familiar with it. So I thought this would be a very small company, but this is a company worth almost $200 billion generating over the last 12 months $29 billion. So definitely not a a small player,

but yeah, like you said, it's a very crucial player as nextg uh server rack systems become bigger and bigger, more complex. Guess what? More content per rack means more money flowing to a player like Amphanol.

Also, like you said, they are diversified. their power, defense systems, cars, heavy industrial equipment, which means cash flow wise. They have steady steady cash flow and apparently they've been acquiring certain smaller companies and integrating them as well quite successfully which means that their competitiveness grows and grows and grows and of course this works because they managed to find the right company, buy them at the right price and integrate them in the right way.

So if Nvidia is growing this quickly rest assured that Amphanol is is making quite a lot of money right now and in the foreseeable future.