3M raised its 2026 profit forecast after strong Q2 results, with its small optical-connectivity unit gaining traction in Microsoft Azure's AI data centers. Investors are watching whether this niche business can become a meaningful growth driver
3M delivered a stronger-than-expected second quarter, raising its full-year profit outlook as robust demand and higher prices in its core industrial businesses offset inflation pressures. The company's shares surged nearly 9% in midday trading on July 21, making it one of the top performers in the Dow Jones Industrial Average for the day. While the earnings beat was the main catalyst, investors are also paying attention to a less familiar part of 3M's portfolio: its optical-connectivity business, which is starting to play a role in the rapid buildout of artificial intelligence data centers.
Industrial Strength and Upgraded Guidance
3M reported adjusted earnings of $2.40 per share on $6.5 billion in sales for the second quarter. The company now expects full-year adjusted earnings between $8.80 and $8.95 per share, up from its previous range of $8.50 to $8.70. The safety and industrial segment, which includes products for personal safety, adhesives, abrasives, and automotive applications, remained the primary driver of growth. According to reporting by TheStreet, safety and industrial sales rose 7.5% to $3.09 billion, while transportation and electronics sales increased 6.2% to $2.07 billion. 3M said that price increases should fully offset the impact of oil-related inflation on profits.
These results highlight how 3M's near-term performance is still anchored in its traditional businesses, where demand and pricing power have helped the company navigate cost pressures. The company's operating margin held at about 25%, supporting double-digit growth in earnings per share compared to the prior year.
AI Data Centers: A New Growth Angle
Beyond its core segments, 3M is drawing attention for its Expanded Beam Optical (EBO) technology, a specialized product designed to improve fiber connections in dense data-center environments. Microsoft Azure recently became the first major cloud provider to announce deployment of 3M's EBO technology, which aims to reduce the impact of dust, vibration, and alignment issues that can disrupt high-speed data transmission in AI data centers. The technology works by expanding and collimating light within fiber connectors, making them less sensitive to contamination or movement.
While EBO currently generates only $40 million to $50 million in annual revenue-a fraction of 3M's overall business-the company's CEO has said that revenue from this product could grow four to five times as adoption spreads. For now, the Azure partnership gives 3M a foothold in the physical infrastructure layer of the AI boom, supplying components that help maintain reliable, high-speed optical connections between servers and networking equipment.
Scale and Limitations
Even if EBO revenue multiplies as projected, it would still represent a small share of 3M's total sales, which reached $6.5 billion in the latest quarter alone. The company's 2026 earnings outlook remains tied primarily to industrial demand, pricing, and cost control, rather than to the success of its AI data center products. Broader adoption of EBO among other hyperscale cloud providers could eventually make it a more visible growth driver, but limited uptake would keep it as a niche extension of 3M's electronics portfolio.
Investors have seen similar dynamics in other technology supply chains, where a single product or contract can spark excitement but may not move the needle for a diversified conglomerate. For context, the experience of chipmakers like Intel-whose earnings beats have not always translated into sustained stock gains-offers a reminder that new growth stories often face high expectations and execution risks. For example, Intel's recent earnings beat did not guarantee a lasting rally as investors weighed broader sector risks.
Key Numbers and Market Context
3M's second-quarter adjusted earnings per share were $2.40, with total sales of $6.5 billion. The company's updated 2026 adjusted earnings forecast is $8.80 to $8.95 per share, up from $8.50 to $8.70 previously. Safety and industrial sales grew 7.5% year over year, while transportation and electronics sales rose 6.2%. EBO's current annual revenue is $40 million to $50 million, with management targeting four- to fivefold growth if adoption accelerates. The stock's strong move on July 21 reflected both the earnings beat and optimism about new opportunities in AI infrastructure.
For investors, the main takeaway is that while 3M's AI data center business is gaining visibility, its financial impact remains limited for now. The company's ability to sustain profit growth will depend on continued strength in its core industrial segments, effective pricing strategies, and disciplined cost management as it navigates both traditional and emerging markets.
Expanded Beam Optical technology is part of a broader trend in data center infrastructure, where reliability and speed are critical for supporting AI workloads. Unlike chips or cloud contracts, these physical components operate behind the scenes, but their performance can have a direct impact on the efficiency and uptime of large-scale computing environments. As hyperscale data centers become more complex, demand for robust optical connectivity solutions is likely to grow, though the competitive landscape and pace of adoption remain uncertain.
