<\/p>\n
3M (MMM) is a company that is famous for Post-it Notes, Scotch tape, and the N95 respirators many of us became familiar with during the pandemic. Now, that company is also benefiting from the AI boom.<\/p>\n
The company builds the fiber-optic connectors that data centers use to move data at high speed between servers and networking gear. And that key role is what gives it value in the AI build-out. Based on that, the company has strategic deals with major tech giants, including Microsoft (MSFT) and Amazon (AMZN).<\/p>\n
Recently, 3M expanded its commercial deal with Amazon, and it’s worth up to $6 billion in future purchases of fiber-optic gear for Amazon’s cloud and AI data centers. In the days after the news broke, MMM shares increased by more than 5%. <\/p>\n
Inside the expanded Amazon partnership for 3M<\/p>\n
On Oct. 19, 3M signed the expanded deal with an Amazon subsidiary, according to an SEC filing. As part of the agreement, the company gave Amazon a warrant to buy up to 3.16 million 3M shares over the next seven years at $164.89 each.<\/p>\n
Also read: OpenAI CFO offers calming message amid AI slowdown fears<\/p>\n
However, about 85% of those shares will only unlock if Amazon ends up buying up to $6 billion of 3M’s optical connectivity and data center products during that window, Reuters reported. The remaining 15% will be unlocked as certain milestone conditions are met.<\/p>\n
3M has repositioned itself as a critical supplier to the AI data center build-out, landing hyperscale deals with Microsoft and Amazon.<\/p>\n
jetcityimage \/ Getty Images<\/p>\n
Microsoft gave 3M validation; Amazon is adding real money<\/p>\n
Amazon is 3M’s second hyperscale customer in just three months. <\/p>\n
Back in July, Microsoft confirmed that it became the first major cloud company to use 3M’s Expanded Beam Optical (EBO) in Azure data centers. That first deal was enough proof that the tech works, and now Amazon is adding real money to their relationship.<\/p>\n
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To meet the demand of these two big companies, 3M is also buying a 4.7% stake in Taiwan-listed Genius Electronic Optical to help build the parts at scale. CEO William Brown, who took over 3M in May 2024, has made data centers one of his top growth bets, as evident from the recent deals.<\/p>\n
Alex An, 3M’s vice president for the data center vertical, framed the pitch earlier this year. “As AI workloads scale, the physical layer of data centers is being pushed to new limits,” An said, according to 3M‘s release.<\/p>\n
A solid third quarter kept the AI case believable<\/p>\n
The Amazon news came one day before 3M reported its third-quarter earnings for fiscal 2026. The company reported an EPS of $2.50, which beat Wall Street’s expectations of $2.43. <\/p>\n
What caught my attention was that 3M changed one of its accounting rules this quarter, which added about four cents to EPS on its own.<\/p>\n
But even without that boost, 3M still beat earnings expectations. The company’s Safety & Industrial unit, which sells adhesives, abrasives, and worker safety gear, drove most of that growth. And 3M’s management raised its full-year 2026 EPS guidance to a range of $9.10 to $9.15.<\/p>\n
Related: Palo Alto CEO wants AI labs out of the ‘fear-mongering business’<\/p>\n
However, organic revenue came in weaker than expected because consumer electronics sales were sluggish, and retailers were also running down the stock of 3M products they already had on their shelves instead of placing new orders. <\/p>\n
Both of those weak areas belong to the parts of 3M that sell to shoppers and gadget makers, so they have nothing to do with the AI data center opportunity.<\/p>\n
In a BofA Global Research Report shared with me, analyst Andrew Obin kept his Buy rating on 3M with a $200 price target. He wrote that 3M “beat our estimate and consensus on margins and consensus even with the change in accounting.”<\/p>\n
What investors should watch <\/p>\n
Investors should note that Amazon hasn’t committed to the $6 billion itself. That figure is just the ceiling for the warrant. The deal also spans seven years, so if AI spending slows during that period, 3M’s data center sales could likewise slow down.<\/p>\n
Also, the company’s valuation isn’t cheap. 3M trades at about 31 times trailing earnings, and its shares are only about 5% below their 52-week high of $184.90. So it might be better to wait for a pullback before adding at these levels.<\/p>\n
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