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AI Surge Boosts Cooling Tech Stocks, Carrier & Trane Up 20%

AI surge drives demand for cooling tech, with Carrier, Trane, and Johnson Controls leading; Apple develops in-house AI chip, challenging Intel.

By Bill Bullington

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5/8, 11:09 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Apple Inc.
Carrier Global Corporation
Caterpillar, Inc.
Cummins Inc.
Intel Corporation
Johnson Controls International plc
TE Connectivity Ltd. New Switzerland Registered Shares
Trane Technologies plc
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Key Takeaway

  • Demand for data center cooling technologies boosts Carrier Global, Trane Technologies, and Johnson Controls, with stocks up 18-20% YTD.
  • TE Connectivity aims to double AI revenues to $400M next year, highlighting the sector's growth potential.
  • Caterpillar sees a 9% increase in power generator sales, with an estimated 25% demand from data centers, prompting capex in manufacturing capacity.

AI Revolution Fuels Industrial Demand

The surge in artificial intelligence (AI) applications has significantly increased the demand for data centers and the industrial components necessary to prevent overheating of AI chips. According to Melius Research analyst Jake Levinson, companies specializing in cooling technologies like Carrier Global, Trane Technologies, and Johnson Controls are experiencing heightened demand for their HVAC systems. Additionally, firms such as Parker-Hannafin and Dover, known for their fluid connectors and industrial pumps respectively, have seen their stock values increase by 20% and 18% year to date, underscoring the booming market for data center cooling solutions.

Powering the Future: Backup Generators and Smart Grids

The AI-driven demand extends beyond cooling systems to include backup power solutions and smart grid technologies. Industrial giants like Caterpillar and Cummins, known for their back-up power engines, are witnessing a surge in sales to data center owners. Caterpillar's power generator sales, for instance, rose by 9% in the first quarter, with an estimated 25% of demand stemming from data centers. This sector is experiencing a 15%-20% annual growth, prompting Caterpillar to expand its large engine manufacturing capacity. Similarly, GE Vernova's electrification segment, which includes grid solutions and high-voltage equipment, is benefiting from the increased need for smart grid software to manage power distribution efficiently.

Apple's Strategic Move into AI Chip Development

In a significant development, Apple Inc. is reportedly working on a homegrown AI chip designed for data centers, marking a pivotal shift towards enhancing its tech infrastructure and reducing dependency on external chipmakers. This project, known internally as Project ACDC, could potentially reshape the competitive landscape by positioning Apple alongside tech behemoths like Amazon AWS and Google, who have also ventured into developing their own data center semiconductors. Apple's initiative reflects a broader industry trend towards self-reliance in semiconductor production, challenging the traditional dominance of companies like Intel Corp.

Street Views

  • Jake Levinson, Melius Research (Bullish on Carrier Global, Trane Technologies, and Johnson Controls):

    "The key for chipmakers with AI ambitions is keeping data centers cool."

  • Jefferies Analyst for Caterpillar and Cummins (Bullish on Caterpillar and Cummins):

    "Power generator sales were up 9% in the first quarter from the year-earlier period... roughly 25% of demand is coming from data centers — growing 15%-20% year over year."

Management Quotes

  • Scott Strazik, CEO of GE Vernova:

    "We’re having to challenge ourselves and how we support that capacity growth... Those areas of the business have the most healthy growth today and over the next 90 days. I’ve got a lot of work to do with our leadership team to make sure we’ve got the capacity to serve those growth markets. And that’s one of my biggest priorities."