A Wild Year in Industrials: What’s Booming, What’s Breaking, and What Comes Next

This year in the industrial sector has been one of the most uneven, confusing, yet fascinating periods I have seen in a long time. Some stocks ripped higher. Others collapsed. Many companies that were dependable winners for years suddenly stalled. And one thing has become overwhelmingly clear. Growth is no longer evenly distributed across the sector. It lives almost entirely in a few powerful pockets.

So I sat down with Nigel Co of Wolfe Research who covers the full breadth of industrials. What he shared was eye opening. Here is my distilled account of our conversation and my personal conclusions.

The Industrial Sector Has Split in Two

If I had to summarize the year in one sentence it would be this. Anything connected to data centers is booming. Almost everything else is not.

A decade ago industrial outperformance was all about quality, margins, and valuation discipline. Boring was beautiful. Today it’s all about growth. If a company has organic sales growth it has EPS momentum and if EPS momentum exists the stock works. Period.

The clearest winners

• Envant

• Veridiv

• Wesco

• Verdive

These companies have real exposure to the data center buildout and are putting up 5 to 15 percent organic growth which is extraordinary for industrials. They are also seeing backlogs stretch out three to five years. That never happens in industrials.

The losers

• Residential HVAC

• Consumer exposed names

• Stanley Works

• Carrier

• Lennox

• Anything connected to home improvement

Some of these categories are posting negative ten to fifteen percent demand declines. Residential HVAC is down at levels nobody expected.

AI Has Redrawn the Power Map

The biggest transformation is occurring inside the electrical and power ecosystem. Eaton, a long time superstar, paused this year. Not because the company is broken but because it still has some legacy businesses like heavy duty trucks and auto that are weak. At the same time Eaton is building twelve new plants in the US which is something they have not done in 40 to 50 years. All of this is to support the explosion of electrification and the demands of AI.

Let me explain why this matters. Every new data center needs enormous amounts of power and cooling. There is gray space which is electrical infrastructure and white space which is IT and cooling. Eaton plays heavily in gray space. Vertiv and Envant dominate white space.

The real constraint in AI is not compute. It is power. Most companies at the recent data center conference told Nigel that customers want equipment yesterday but the real worry is whether they can get enough electricity to plug it in. This is why new data centers are being built in Texas and the Midwest instead of Santa Clara or Northern Virginia. They simply need places with available power.

Power Generation Is Experiencing a Renaissance

The biggest comeback story in the entire sector is GE Vernova. Five years ago the market saw no future for gas turbines. Renewables were rising. Power demand was flat. GE had acquired Alstom which came with negative liabilities and they were burning billions in cash.

Fast forward to today. Data centers run twenty four seven. EVs, heat pumps, electrified heating, and new semiconductor fabs have shifted total grid demand from one percent annual growth to nearly three percent. That small percentage change translates to tens of gigawatts of required new generation.

Gas turbines are back. GE Vernova now has demand visibility beyond 2030. Their biggest constraint is how quickly they can add capacity. This is the most dramatic industrial swing I have seen in years.

Honeywell and 3M Are Reinventing Themselves

Honeywell is breaking itself apart much like GE did. One of the last major conglomerates is spinning out aerospace to unlock value and improve clarity. Investors like simple stories they can explain in under ten seconds and Honeywell is moving in that direction.

3M is another turnaround story. After years of legal liabilities and cultural stagnation a new CEO, Bill Brown, is executing a credible margin and growth recovery plan. For a company so tied to global industrial production even a modest improvement creates real equity value.

Housing Still Sucks

Every industrial tied to households or residential construction is struggling. We are underbuilding between three to five million homes yet demand for HVAC units, building products, tools and home improvement goods is down sharply. Most management teams are hoping for flat growth next year after a painful decline. That is not optimism. That is survival mode.

What I’m Watching Next Year

The economy is completely K-shaped. High growth for anything connected to AI and electrification. Weakness for anything household or consumer related.

If I were advising an investor today here is how I would frame it.

The near term winner:
Data center infrastructure across power, cooling, electrical equipment, automation.

The avoid for now:
Residential housing and consumer facing industrials until the Federal Reserve starts cutting meaningfully.

The big question mark:
Short cycle industrials like Rockwell, Parker Hannifin, and even 3M. The ISM has been sub fifty for three straight years. Something has to give. Either we get a real cyclical turn in 2026 or we stagnate longer.

If housing rebounds:
Lennox International
Stanley Black and Decker

Both have extreme leverage to a housing recovery.

This year has reminded me that industrials are no longer a homogeneous block of companies. They are a collection of mini economies and the gap between winners and losers has never been wider. With AI and power infrastructure redefining entire markets the next three years may be the most transformative industrial cycle of the decade.

If you understand where the structural growth is you avoid the traps. If you chase value too early you get run over. And if you ignore power constraints you miss the biggest story unfolding behind the scenes of AI.

Until next time, this is Steve Eisman, and this has been The Real Eyesman Playbook. .
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This post is for informational purposes only and does not constitute investment advice. Please consult a licensed financial adviser before making investment decisions.