INVESTING TRENDS
AI needs to keep cool—literally. That’s driving demand for these infrastructure companies
PUBLISHED WED, MAY 8 202410:58 AM EDTUPDATED 9 MIN AGO
Seema Mody @SEEMACNBC
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Here are the AI industrial names powering Big Tech
The advent of artificial intelligence has skyrocketed demand for data centers and industrial components to keep all the AI chips from overheating.
“The key for chipmakers with AI ambitions is keeping data centers cool,” Melius Research analyst Jake Levinson told CNBC.
Levinson said cooling technologies manufacturers Carrier Global, Trane Technologies and Johnson Controls are all seeing higher demand for HVACs.
Then there are the companies that create the infrastructure used to regulate temperature — from Parker-Hannafin’s fluid connectors to Dover’s industrial-style pumps used in liquid cooling. The stocks are up 20% and 18%, respectively, year to date.
Parker-Hannifin Corp
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Industrial experts are also watching TE Connectivity, which specializes in industrial connectors that transport electric signals to the servers inside data centers. On TE’s earnings call, executives said they expect to double AI revenues to $400 million next year.
Analysts at Jefferies are also bullish on the big industrials, such as Caterpillar and Cummins, whose backup power engines are sold to data center owners.
For Caterpillar specifically, power generator sales were up 9% in the first quarter from the year-earlier period. While the company does not disclose data center share, Jefferies industrial analyst Stephen Volkmann estimates that roughly 25% of demand comes from data centers and is growing between 15% and 20% year over year.
“However, they [Caterpillar] are capacity constrained, which is why they are investing capex to increase large engine manufacturing capacity,” Volkmann told CNBC.
Another big player benefiting indirectly from the AI craze is recent spinout GE Vernova and its electrification segment.
Growing demand for smart grid software that helps companies manage the disbursement of power has fueled GE Vernova’s electrification segment, which includes grid solutions, high-voltage switchgear and transformer products.
“We’re having to challenge ourselves and how we support that capacity growth,” CEO Scott Strazik told CNBC after the company posted first-quarter earnings in April. He’s also seeing similar trends with transformers and switch gears.
“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,” he said. |
