3M (MMM) recently announced a new deal with Amazon (AMZN) under which the Big Tech giant will buy its products for use in data centers. The agreement could prove to be a positive game changer for MMM stock over the longer term, with the agreement likely to significantly boost the bottom line. If 3M manages to sign similar deals with other major data-center operators, its top and bottom lines could receive further boosts as well.
Under the deal between 3M and Amazon, the industrial company will provide products including its Expanded Beam Optical (EBO) connectivity offerings for the latter's data centers. Amazon will also receive warrants to purchase around 3 million shares of MMM stock over seven years. About 85% of the warrants will reportedly only be valid once Amazon's cumulative data-center purchases reach $6 billion.
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www.barchart.com The Potential Impact of the Amazon-3M Agreement
This deal heavily incentivizes Amazon to buy an average of about $860 million of products annually from 3M, based on the total $6 billion that Amazon will need to spend over seven years to activate 85% of the warrants. Supporting this estimate, UBS believes 3M's annual optical connectivity and data-center revenue could surge from $40 million to more than $1 billion by 2028.
If this deal increases 3M's annual revenue by $820 million (or $860 million less $40 million), and the products carry a gross margin of 65%, its operating income would surge by around $500 million as a result of the contract. In 2025, 3M's total operating income was about $4.6 billion, so the deal could increase 3M's annual operating income by more than 10%.
3M CEO Bill Brown estimates that revenue from the Amazon deal will start to increase by the end of next year.
Microsoft Is Already on Board, Others Could Follow
In July, Microsoft (MSFT) also agreed to use 3M's optical connectivity products in its own data centers. Ultimately, a few other major data-center operators — including Meta Platforms (META) CoreWeave (CRWV), and Alphabet (GOOGL) — could follow suit as the artificial intelligence (AI) boom continues. Brown reportedly estimates that the total addressable market for 3M's EBO business could reach about $2 billion by 2028.
With that said, it seems entirely possible that demand from data centers for 3M's products could add substantially to the firm's operating income in 2028, compared with 2025.
A Minimal Chance of Bankruptcy
Some market observers have speculated that 3M could face future financial distress, particularly after having agreed to fork over $6 billion between 2023 and 2029 to settle litigation related to hearing loss and tinnitus allegedly caused by defective earplugs the company made. One website estimates that 3M has a 6% chance of facing “financial distress” in the next two years, while another currently puts 3M's chances of bankruptcy at just 1.2%.
That's something to consider. However, given the company's high operating income — and the fact that 3M pays out a 1.79% dividend yield — I do not expect it to go bankrupt anytime soon.
The Bottom Line on 3M Stock
With 3M stock changing hands at a relatively low forward price-to-earnings (P/E) ratio of 19.1 times, shares look attractive for value investors and growth-at a-reasonable-price investors.
Overall, MMM stock has a consensus “Moderate Buy” rating on Wall Street based on 16 analysts with coverage.
On the date of publication, Larry Ramer had a position in: AMZN , AMZU . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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