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Conglomerates — industry outlook

  • Period: 2026-08-30 to 2026-09-20
  • Events: 3
  • Generated: 2026-09-20T06:30:00.003Z

Data Center Infrastructure Acceleration

Both 3M (MMM) and Honeywell (HON) identified data centers as a primary growth engine, though they target different adjacent markets. 3M (MMM) projects the Expanded Beam Optics (EBO) Total Addressable Market (TAM) to reach $2 billion by 2028, leveraging a 44-member ecosystem where Microsoft has standardized EBO for Azure with proofs of concept active among five other hyperscalers; the company is doubling EBO production capacity in 2026 to meet demand that currently exceeds capacity. Honeywell (HON) sees its building automation content per data center expanding beyond traditional infrastructure into power generation ("power island"), driving a >20% growth rate in this segment as the company capitalizes on global expansion into Europe, Korea, and India.

Margin Expansion and Pricing Power Amid Persistent Inflation

Conglomerates are aligning guidance around aggressive margin targets supported by sustained price increases to counter a persistent inflationary environment. 3M (MMM) expects organic growth to accelerate in H2 with a total price increase of ~1.5% for the year (1% in H1, 2% in H2) to offset 50 bps of material inflation, ~30 bps for tariffs, and 70 bps for oil headwinds, aiming to achieve >25% operating margins by 2026. Honeywell (HON) targets 60 basis points of annual margin expansion through FY2029, planning ~4% pricing in H2 to offset 3–4% industrial inflation expected to persist through FY2027. While 3M (MMM) anticipates a 10–20 bps temporary margin headwind from cost spikes, Honeywell (HON) maintains confidence in pricing power contingent on continued innovation and service levels to avoid demand destruction.

High-Growth Portfolio Mix and Strategic Software Shifts

Both firms are actively reweighting their portfolios toward high-growth verticals and monetizing software recurring revenue to drive future performance. Honeywell (HON) targets increasing its high-growth vertical mix from 20% to 25% by 2027 and raising the services and software revenue mix from 40% to 45%, with its Forge platform projected to reach $1.0 billion in Annual Recurring Revenue (ARR) by end of FY2026. 3M (MMM) is pivoting R&D spend so that 80% aligns with priority verticals like semiconductors and data centers, aiming to increase its New Product Vitality Index to ~20% by the end of next year from the mid-teens. Honeywell (HON) complements this with the acquisition of Johnson Matthey Catalyst capabilities to target the future renewable fuel cycle, while 3M (MMM) pursues inorganic growth in sticky markets like fire safety.

Industrial Automation and Energy Transition Cycles

Specific industrial segments are showing distinct recovery and expansion patterns tied to energy and manufacturing cycles. Honeywell (HON) reports Process Automation Technology (PAT) backlog is up 25% to historic highs, with proprietary LNG equipment booked through 2028–2029, driven by a secular shift from coal to gas and geopolitical diversification; the company expects industrial automation to transition from share loss to modest growth in 2026. Conversely, 3M (MMM) notes that while light vehicle builds are down ~1.5%, a recovery in commercial vehicles is expected to drive H2 growth, and its Transportation & Business Group is growing near 6%. Both companies face inflation risks, with Honeywell (HON) citing electronics and commodity costs at 3–4%, while 3M (MMM) faces $150–$175 million in oil-linked input cost headwinds.

Execution Risks and Geographic Headwinds

A divergence exists regarding the immediate risks to global growth, particularly concerning China and consumer sentiment. 3M (MMM) explicitly warns of softening in H2 due to weakness in consumer electronics and channel inventory normalization in China, which exposes the company to cautious consumer sentiment regarding gas and interest rates. In contrast, Honeywell (HON) reports resilience with double-digit order growth in short-cycle segments and strong long-cycle bookings, though it acknowledges a 2% contingency in its growth bridge for macro volatility. While 3M (MMM) anticipates potential pullbacks in data center construction, it maintains that 70% of its business is independent of data center trends, whereas Honeywell (HON) views the energy transition and data center expansion as secular, multi-year drivers.