Best compounder in the Data Center value chain - Amphenol (APH)

APH is my favorite name in the entire data center secular trend value chain. And I can explain what they do in 1 sentence: Basically they sell electronic components that transmits power for data centers under various stressful environments. (Products include: interconnect systems, sensors, and specialty cables) This is your picks and shovels play in this secular trend of AI infrastructure build out - which is going to be longer than most people can imagine. This business is incredibly stable and was known for being the “consumer staples” within the industry. There are a few green flags/main moats I like about APH that a compounder typically has (I’m gonna list them below as I’m too lazy to type in paragraphs / before I get into why stock is down and valuations). Green Flags: \- Hyper decentralized structure with over 130 autonomous business units. \- Smart segment/product mix: APH has 3 business segments all with good growth profile and margins. Think of a split between: AI data centers/military&aerospace/automotive, medical, and others - I like diversification here as APH will act less like a monolithic tech manufacturer and more like a compounder. Product strategy wise, they avoid commoditized consumer products and focus on high mix & low volume. This means they dominate in specialized markets - if you are an AI data center, APH has you covered with the specific type of cable you need. A cable is cheap to a data center but will cause a big damage if it fails - this is APH’s moat because data centers will buy from them and won’t switch. This is one of the main thesis: they have pricing power because of this. \- High switching cost: another main thesis for APH. APH doesn’t just sell parts, they work with customer on the power delivery infrastructure for 2-3 years before product even launches. \- Growth profile: perfect mix of organic growth (a third of historic growth) and M&A growth (two thirds). Their M&A playbook has not only been accretive (ROIC goes up over time), but also helped them scale cost down (they get raw materials such as copper and precious metals for plating cheaper than anyone else). \- Capital light business: CAPEX is 3-4% of sales. This is insane. I love businesses that grow without needing a ton of additional investment each year. Fundamentals: They are a 153 billion market cap company making around 26 billion in topline (ttm) and makes free cashflow of 831 million. 2025 growth was incredible: 51.7% topline growth / 86% operating income growth / 43% FCF growth. Segment was split between: communications/harsh environment solutions/interconnect&sensors. Revenue was split between roughly: $12b/6b/5b. Communications is basically half the revenue and grew 91% in 2025 - basically the AI data center spending boom is reflected here. Operating margins are around 20%-30% across the 3 segments. Q1 2026 numbers were even better than FY25 which higher growth numbers. Fundamentals are beyond great here so no further comments from me. And I align my thoughts with Jensen Huang - AI infra build out phase 2 is underway and I will gladly chill on this stock. Price action and Valuation: Price has come down quite a bit and the stock is down 7.5% ytd but still almost doubled since January 2025. So it’s not cheap - in this context it’s a good thing. The secular trend is behind us here, I am ok with buying dips in a bull market - this is not like buying a value trap such as PYPL. I think the recent drop is from minor margin compression from acquisition of CommScope CCS. This created this opportunity for the dip previously mentioned. APH’s historic playbook typically shows recovery of margin within 12-18 months of M&A so I get more excited at the godly operating leverage coupled with explosive topline growth for 2027. Mults aren’t cheap - good compounders rarely are and if you don’t buy them at a reasonable price, you never will own them. Forwards PE of 26x isn’t crazy but not cheap, but it’s where I call reasonable. And you factor in forward PEG of 1x, which is reasonable. Chart reads ok too, sitting at a major support in both daily and weekly candles. I’m ok buying here. My position: I sold monthly $115 cash secured puts with 30% of my portfolio (almost all of my cash position). Certainly hope to get assigned shares as I will get an 8% discount but if not I’m not complaining as I’m earning almost 3% per month collecting premium.