Morgan Stanley spots hidden multi-decade data center winner

Some categories of investment theses don’t make headlines. Not because they’re boring, but because they move slowly enough that most investors lose patience before the payoff arrives. U.S. manufacturing reshoring has that kind of story.

Morgan Stanley just spent a week with Rockwell Automation (ROK) management on a West Coast investor roadshow, and it came away more convinced than before. The firm then reiterated its overweight rating and $525 price target, according to a note shared with me at TheStreet.

Morgan Stanley is describing what it sees as “an emerging multi-decade opportunity (Still early),” the note read.

Rockwell CEO Blake Moret had already signaled the momentum in May. 

“We delivered a strong second quarter, with double-digit growth in sales and earnings exceeding our expectations,” he said in a company statement. 

“We saw solid momentum across much of the business, led by improving demand in warehouse automation, data center, semiconductor, and energy.”

What Morgan Stanley heard in those meetings, particularly around data centers, suggests the market may still be underestimating how big this opportunity actually is.

Also Read: Rockwell Automation Inc. Latest News

Why Rockwell’s order strength signals a cycle that’s genuinely turning

The most important takeaway from Morgan Stanley’s meetings was not a number, but management’s confidence around what that number means.

Rockwell’s Q2 fiscal 2026 book-to-bill ratio came in above 1.10x, according to the Morgan Stanley note. 

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That means the company is booking more orders than it’s shipping. In fact, that’s a classic early-cycle signal. 

Management attributed the strength to order timing rather than channel building or lead time extension, according to the note. Morgan Stanley took that explanation as a positive.

Rockwell Q2 fiscal 2026 financial highlights include:

• Reported sales: Up 12% year-over-year (YoY)
• Organic sales growth: Up 9% YoY
• Adjusted EPS: $3.30, up 32% YoY
• Diluted EPS: $3.10, up 40% YoY
• Total annual recurring revenue (ARR): Up 6% YoY
  Source: Rockwell Automation Second-Quarter 2026 Results

Rockwell updated its fiscal 2026 organic sales growth guidance to a range of 5% to 9% and raised its adjusted EPS guidance range to $12.50 to $13.10, according to the company statement.

My review of the data surfaces something worth noting. 

Rockwell is delivering high single-digit organic growth, despite facing headwinds in roughly 35% of its end markets — specifically automotive and food and beverage, which Morgan Stanley described as laggards in the current early-cycle recovery, according to the note. 

That means the recovery still has meaningful room to broaden.

The data center shift nobody is talking about, and why it matters for ROK

Here’s the part of Morgan Stanley’s thesis that stands out most, and that the market appears to be underpricing.

AI data centers are getting more complex. As workloads scale and power density increases, operators are moving away from legacy building management controls toward industrial controls, according to the note. In fact, that’s exactly the kind of tech Rockwell has built its business around for decades.

Morgan Stanley mentioned in the note that industrial controls have historically had zero presence in data centers. They are now being adopted in the majority of AI data centers currently under construction.

Related: Morgan Stanley revamps Rockwell Automation stock price target

Rockwell’s data center content is led by industrial programmable logic controllers (PLCs) under its Logix platform and modular power distribution through its Cubic product line, according to the note. 

The company’s deep relationships with system integrators — who advise hyperscalers on tech decisions — are accelerating adoption without requiring margin-dilutive acquisitions or new tech development.

The revenue implication, according to Morgan Stanley’s estimates:

• Data center share of Rockwell sales over the last 12 months: Low single-digit percentage
• Expected pathway over the next twelve months: Mid single-digit percentage
• Broader data center market growth: 25% to 30% gigawatt compound annual growth rate through 2030

That trajectory from near-zero to a meaningful and growing revenue contributor is the kind of incremental expansion that doesn’t show up in quarterly results immediately, but compounds significantly over a multi-year cycle.

400 basis points of margin expansion, and Rockwell’s self-help story isn’t over

Morgan Stanley also highlighted Rockwell’s internal execution as an underappreciated earnings driver. 

The company has expanded margins by about 400 basis points over the past two years through restructuring, efficiency programs, and cost-out initiatives, eliminating roughly $400 million in costs. 

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Management has already identified productivity programs for fiscal 2027 and is earmarking opportunities for fiscal 2028, according to the note. 

Also, Q2 delivered approximately 50% incremental operating margins for a second straight quarter, driven primarily by volumes, productivity, and price/cost, with mix serving as a smaller tailwind. 

Morgan Stanley’s fiscal 2026 EPS estimate is $13.08, near the top of Rockwell’s $12.50 to $13.10 guidance range.

Why Morgan Stanley’s $525 price target implies meaningful upside from here

ROK shares closed at $460.47 on June 9, up 19.13% year to date, according to Yahoo Finance data. The stock has also returned 43.98% over the past year. The S&P 500 returned 7.91% and 22.99% over those same periods.

Morgan Stanley’s $525 price target is based on roughly 32.5 times blended fiscal 2027 and 2028 EPS of $16.06, according to the note. 

That multiple represents approximately a 60% premium to the S&P 500 and a 40% premium to automation peers, near prior highs for the stock. The firm argues that secular tailwinds and accelerating organic growth justify that premium.

With reshoring momentum still building, the data center controls shift still in early innings, and a self-help margin story that management says isn’t close to exhausted, Morgan Stanley’s conviction appears grounded in something more durable than a single good quarter.

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