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[Data Center Cooling] The Rapidly Expanding Cooling Market Driven by AI Demand and Key Investment Stocks (Vertiv, Schneider, Johnson Controls)

マナトク投資ラボ｜米国株・ETFガイド

With the arrival of the AI era, global demand for data centers is expanding explosively.

The AI data center market in 2025 is approximately $13 billion, but it is projected to reach over $80-90 billion by 2030 (20-30% annual growth).

Even more surprising is the evolution of AI chip thermal density.

Power consumption per rack is projected to go from the traditional 5-15kW to over 100kW now, and reach 1,000kW (1 megawatt) by 2029.

If this massive amount of heat cannot be cooled efficiently, even the highest-performance AI chips will not function.

In other words, the cooling system is the 'heart' of the AI revolution.

And now, the data center industry is reaching a historic turning point.

In this article, we will thoroughly analyze the full picture of this 'thermal management supercycle' and the key investment stocks driving it.

Let's take a look.


1. Explosive Growth of the Data Center Market

1-1. Data Center Demand Driven by AI and Cloud

Since the emergence of ChatGPT, the generative AI boom has swept the world, and data center investment by major tech companies (hyperscalers) is accelerating rapidly.

Big Tech invests heavily in AI. Total quarterly capital expenditures for Amazon, Microsoft, Alphabet, and Meta. Source: CB Insights

This wave of investment is known as the infrastructure investment supercycle, and it is projected to reach up to $3 trillion (approx. 390 trillion yen) by 2030.

1-2. Past and Future Figures for Data Center Construction

[AI Data Center Market Growth Forecast]

Regarding growth forecasts, the market is expected to grow at a compound annual growth rate (CAGR) of 20-30+%.

Within this, facility infrastructure (power and cooling) currently holds a 12% share, but its strategic importance is rising rapidly due to the increase in heat density.

[Surge in Power Consumption]

Data center power consumption is also increasing at an astonishing pace.

And since 38-40% of data center power consumption is accounted for by cooling systems, this surge in power means explosive growth in cooling demand.

1-3. Evolution of Heat Density: Challenging Physical Limits

To understand the growth of the data center cooling market, it is necessary to know the evolution of rack density (heat density).

[Evolution of Rack Density]

The limits of air cooling become pronounced when rack density exceeds 20 kW.

Trying to cool heat beyond that with air reaches a level where the required airflow becomes impossible to achieve, both in terms of noise and economics.

[The Overwhelming Superiority of Liquid Cooling]

The reason liquid cooling is essential is that water and other dielectric fluids have over 1,000 times the thermal conductivity of air.

A PUE of 1.05 means that for every 100 units of power consumed by IT equipment, only 5 units of power are required for cooling.

This difference in efficiency leads to a dramatic reduction in Operating Expenses (OpEx).

2. Potential of Data Center Cooling Demand

2-1. Cooling Market Size and Growth Forecast

[Growth of the Data Center Cooling Market]

The liquid cooling market is also expected to grow approximately sixfold over the ten-year period from 2025 to 2035.

[Adoption Rate of Liquid Cooling]

Currently, it is projected that over 43% of new global data centers will adopt liquid cooling.

This rapid adoption is triggering a "cascade effect".

  1. Increased demand for AI chips

  2. Higher server density

  3. Surging demand for Coolant Distribution Units (CDUs), manifolds, pumps, and valves

2-2. Types and Evolution of Liquid Cooling Technology

There are several methods for liquid cooling.

[Main Liquid Cooling Technologies]

  • Direct-to-Chip (DTC): Supports 50-150kW density, such as NVIDIA GB200

  • Immersion Cooling: Supports 100-300kW density, ultra-high-density AI chips

  • Two-Phase Cooling: Supports 200+kW density, next-generation AI chips

[Advantages of Liquid Cooling]

  • Energy efficiency: Reduces power consumption by up to 46%

  • Enables higher density server placement

  • Quieter cooling (dramatically reduces noise within the data center)

  • Easier waste heat reuse (can be used for heating or process heating)

2-3. The 45°C Revolution: Is the Era of No Chillers Upon Us?

In January 2026, the industry was shaken.

NVIDIA CEO Jensen Huang announced at CES (Consumer Electronics Show) that "the Vera Rubin platform can be cooled with 45°C water".

Following this announcement, the stock prices of traditional HVAC companies such as Trane, Modine, and Johnson Controls plunged 10-21% in a single day.

Investors feared that "the era of no chillers (refrigeration units) has arrived".

[The Truth About 45°C Cooling]

However, according to detailed analysis by industry experts, this sell-off is likely an overreaction.

  • Misconception: Cooling with 45°C water = No chillers needed

  • Truth: 45°C water only eliminates the need for mechanical refrigeration in the primary cooling loop, but infrastructure to release heat into the environment is still required

Specifically:

  • Instead of chillers, large-scale dry coolers or cooling towers are required

  • Data centers are typically hybrid environments (80% AI servers + 20% storage/network), and the remaining 20% still requires traditional air cooling

  • 45°C systems require higher-performance CDUs (Coolant Distribution Units)

[Implications for Investors]

This technological shift means a reallocation of capital expenditure. While investment in mechanical compressors will decrease, investment in the following will increase.

In other words, it is not "chiller-less" but rather "the value of the cooling stack is moving closer to the chip".

3. Key Players in the Data Center Cooling Market

3-1. Market Share and Competitive Landscape

The data center cooling market is a growth market where pure-play companies and diversified industrial equipment manufacturers compete.

Data Center Cooling Market Share
(2025 Estimates based on company revenue)

Let's look at the details of each company along with the latest financial data.

* German air conditioning giant "STULZ" is a private company, so it will be omitted here.

3-2. Vertiv Holdings (VRT)

[Company Overview]

  • Market Cap: $90 billion (as of February 14)

  • Revenue (TTM): $10 billion

  • Business Description: Power, cooling, and rack solutions for data centers

  • Characteristics: Pure-play company specializing in data centers

{Performance Highlights}

  • Organic orders +252%: This indicates "tsunami-level" demand

  • Book-to-bill ratio 2.9x: $2.9 in orders for every $1 in revenue, meaning extremely high visibility for future revenue

  • Backlog of $15 billion: This amount virtually guarantees revenue through 2027

[Competitive Advantage]

  • Strategic partnership with NVIDIA

    • Vertiv 360AI: The industry's first integrated power and cooling platform specifically designed for AI

    • NVIDIA GB200 and Vera Rubin platform reference designs incorporate Vertiv systems

    • As a result, many hyperscalers have adopted Vertiv as the 'default choice'

  • Leadership in the liquid cooling market

    • Liquid cooling revenue more than doubled year-over-year in Q1 2025

    • Projecting 40% annual growth by 2028

    • CDU (Coolant Distribution Unit) manufacturing capacity expanded 45-fold in 2024

    • 11.3% liquid cooling market share (industry-leading)

  • Custom engineering capabilities and customer lock-in

    • Customized solutions for hyperscalers (AWS, Google, Meta, etc.)

    • Extremely high switching costs: switching to another vendor requires 6 to 12 months and millions of dollars in re-validation

    • This "customer lock-in" effect guarantees long-term revenue

[Investor Appeal/Strengths]

  • Most direct exposure to the data center market

  • Industry-leading growth rate (+27-29%)

  • Revenue potential from massive order backlog

[Investor Risks]

  • High valuation (P/E 66-73, Forward P/E ~43)

  • Risk of fluctuations in hyperscaler CapEx (capital expenditure)

  • Susceptible to economic cycles due to heavy concentration in the data center market

3-3. Schneider Electric (SU.PA)

[Company Overview]

  • Market Cap: $176 billion (as of February 14)

  • Revenue (TTM): $47 billion

  • Business Scope: Energy management, industrial automation, data center infrastructure

  • Key Features: Fortune Global 500 company, 2025 'Most Sustainable Company'

{Performance Highlights}

  • Overall business growth forecast: +10-15% growth

  • Data center business is seeing double-digit growth (with particularly strong demand from the US, China, and France)

  • North American expansion investment: Over $700 million invested in US factory expansion

[Competitive Advantage]

[Attractiveness and Strengths for Investors]

  • Most diversified business portfolio (risk diversification)

  • Strong market position in Europe and emerging markets

  • Sustainability initiatives act as a tailwind for stricter regulations

[Risks for Investors]

  • Growth rate is relatively lower as it is not a pure-play data center company

  • Subject to currency fluctuations as a European company

3-4. Johnson Controls International (JCI)

[Company Overview]

  • Market Cap: $85 billion (as of February 14)

  • Revenue (TTM): $24 billion

  • Business Segments: Building Automation, HVAC, Fire & Security

  • Key Features: Operational reforms under new management are underway

{Performance Highlights}

  • Improving operating margin trend (12.4%)

  • 2026 EPS forecast expects a 25% increase year-over-year

  • Massive order backlog ($18.2 billion), with orders from the U.S. specifically up by 56%

[Competitive Advantages]

  • Focus on Mission-Critical Cooling

    • YORK YDAM and YK-HT chiller platforms launched

    • YK-HT features a "waterless heat rejection" capability

      • Saves up to 9 million gallons of cooling tower water annually

      • A key differentiator amid growing concerns over water resources

  • Operational Turnaround

    • Cost reduction and portfolio optimization by new management

    • Divesting non-core industrial assets to focus on mission-critical business

[Investor Appeal and Strengths]

  • Massive backlog ($18.2 billion)

  • Room for margin improvement through operational enhancements

  • Relatively cheaper valuation compared to Vertiv (P/E 46.72)

[Risks for Investors]

  • Limited disclosure of data center business details

  • Uncertainty regarding whether the turnaround will proceed as planned

3-5. Modine Manufacturing (MOD)

[Company Overview]

  • Market Cap: $11 billion (as of February 14)

  • Revenue (TTM): $3 billion

  • Business Description: Thermal management technology, cooling solutions

  • Key Features: Spun off automotive business and is transitioning into a "pure-play climate solutions company"

{Performance Highlights}

  • Improving operating margin trend (12.4%)

  • 2026 EPS forecast expects a 25% increase year-over-year

  • Massive order backlog ($18.2 billion), with orders from the U.S. specifically up by 56%

[Competitive Advantage]

  • Rapid expansion of manufacturing capacity in North America

    • Expanding factory production capacity in Mississippi and Virginia

    • Meeting demand for chillers and dry coolers from hyperscalers

  • Agility

    • Smaller scale compared to major players, but with faster decision-making

    • Organizational structure capable of responding quickly to market changes

[Attractiveness and Strengths for Investors]

  • Most aggressive investment stance in the data center market

  • A "challenger" position taking market share from major players

[Risks for Investors]

  • Net interest-bearing debt: $517 million (relatively high)

  • Free cash flow is temporarily negative (due to large-scale investments in inventory and CapEx)

  • Uncertainty regarding the ability to maintain high growth rates

3-6. Trane Technologies (TT)

[Company Overview]

  • Market Capitalization: $103 billion (as of February 14)

  • Revenue (TTM): $21 billion

  • Business Overview: Commercial and residential HVAC, transport refrigeration (Thermo King)

  • Key Features: Long history as a climate innovator

【Performance Highlights】

  • Revenue increased by +6% (low growth)

  • High free cash flow conversion rate: 98%

  • Strong demand for commercial HVAC

    • Backlog ($7.8 billion), +15% year-over-year

    • Book-to-bill ratio: 1.12 (growing)

[Competitive Advantage]

  • Long-standing track record in the data center market

    • A proven track record of providing solutions for data centers for decades

    • Has led the industry, particularly in chiller (cooling equipment) technology

  • Acquisition of Stellar Energy (December 2025)

    • Announced the acquisition of Stellar Energy Digital

    • modular liquid cooling systems expertise acquired

    • Acquired approximately 700 staff members and two assembly plants

    • Meeting the needs of hyperscalers for "rapid and scalable deployment"

  • Acquisition of LiquidStack (February 2026)

    • Acquired LiquidStack, a provider of advanced two-phase immersion cooling technology

    • Capable of handling the most extreme thermal loads (200+ kW)

  • Strength of the service business

    • Service revenue accounts for approximately 1/3 of the entire company

    • Service business CAGR: Low teens % (consistent since 2020)

    • High-margin, stable revenue source

[Investor Appeal and Strengths]

  • Stable service revenue (cushion against economic fluctuations)

  • Established position in the data center market

  • Relatively attractive valuation (P/E ~35)

[Risks for Investors]

  • Cyclical risks in the residential and transportation segments

  • Data center business represents only a portion of the total

3-7. Valuation and Performance Comparison Between Companies

To assist with investment decisions, let's compare the valuations and performance of each company.

Created based on Yahoo Finance (as of February 14)

4. Regulatory Trends and Technology Trends

4-1. EU Energy Efficiency Directive (EED) 2026

The data center cooling market is accelerating not only due to physical demand but also because of stricter regulations related to energy efficiency.

[Key Requirements of EU EED 2026]

  • Existing Data Centers (by 2030)

    • PUE (Power Usage Effectiveness): <1.3

    • ERF (Energy Reuse Factor): None

    • Energy Saving Obligation: 1.9% (2028-2030)

  • New Data Centers (from July 2026)

    • PUE (Power Usage Effectiveness): <1.2

    • ERF (Energy Reuse Factor): 10% or more (for facilities over 1MW)

    • Energy Saving Obligation: 1.5% (2026-2027)

Implications for Investors:

  • While it is extremely difficult for conventional air cooling systems to fall below a PUE of 1.4, liquid cooling systems consistently achieve a PUE of 1.1 or lower.

  • In other words, the EU EED acts as a strong tailwind for liquid cooling vendors.

4-2. PFAS Phase-out: A Major Transformation in the Immersion Cooling Market

The immersion cooling market is currently facing massive supply chain disruption due to the phase-out of PFAS (per- and polyfluoroalkyl substances), so-called "forever chemicals."

[What is happening]

  • 3M: To completely cease production of fluorinated fluids such as Novec by the end of 2025

  • PFAS fluids have been the standard for immersion cooling, but regulations are tightening globally due to environmental and health concerns

  • A race to develop PFAS alternatives is underway among chemical manufacturers such as Shell, Chemours, and Perstorp


Implications for Investors

  • The transition to PFAS alternatives represents a significant bottleneck.

    • Manufacturers that certify new fluids early, such as Vertiv and Schneider Electric, will have an advantage in orders for 2026–2027.

    • Companies with legacy designs dependent on Novec risk falling behind.

5. [Must-See] How to View KPIs for Cooling-Related Stocks

5-1. Look at These Points in Financial Reports!

When making investment decisions for data center cooling-related companies, focus on the following KPIs.

[Most Important Indicators: Book-to-Bill Ratio and Backlog]

  • Book-to-Bill Ratio = Orders Received ÷ Revenue

    • 1.0 or higher: Growing

    • 2.0 or higher: Explosive growth

  • Backlog

    • Visibility of revenue for the next 12–24 months

    • An increasing trend is most important

  • Organic Order Growth Rate

    • True demand growth excluding M&A

    • +20% or more is ideal

[Metrics to Measure Growth Potential]

  • Growth Rate by Segment (Data Center/Liquid Cooling)

  • Revenue Growth Rate: Target is +15% or more

  • Market Share Trends

[Metrics to Measure Profitability]

  • Operating Margin: Target is over 20% (High value-added for data centers)

  • EPS Growth Rate: Target is +20% or more

  • Service Revenue Ratio: Target is 30% or more (High margin and stable revenue)

5-2. What should you look out for?

[Point to Note 1: Level of Segment Disclosure]

  • The level of data center business disclosure varies by company

    • Vertiv: Since it is a pure-play data center company, almost all figures are relevant

    • Carrier, Trane, JCI, Schneider: Data centers are only a part of their business

  • Action:

    • Read earnings call transcripts

    • Check the frequency of mentions of "data center," "liquid cooling," and "AI" in comments from the CEO and CFO

[Point 2: Distinguish between market-wide and company-specific issues]

  • Compare multiple companies to determine if a trend is industry-wide or specific to a single company

    • Orders are strong across all companies: The entire market is growing

    • Orders are down for only a specific company: Potential decline in that company's competitiveness

    • Liquid cooling revenue is growing rapidly across all companies: Acceleration of the technology shift

[Point 3: Track hyperscaler CapEx]

  • The performance of data center cooling companies is heavily influenced by the CapEx of hyperscalers (AWS, Google, Meta, Microsoft).

  • What to track:

    • Quarterly hyperscaler CapEx announcements

    • Changes in AI/data center investment plans

    • Announcements of new data center construction

[Point 4: Be sensitive to changes in technology trends]

  • January 2026: Cooling-related stocks temporarily fell following the NVIDIA CEO's '45°C cooling' statement. However, expert analysis deemed it an 'overreaction'.

  • Lesson:

    • Do not overreact to short-term news

    • Understand the technical context (45°C does not mean chillers are completely unnecessary)

    • Focus on long-term structural trends (the shift to liquid cooling)

6. [Summary] Investment Opportunities in the Data Center Cooling Sector

The data center cooling market is a promising investment sector expected to see 5 to 10 times growth over the next 5 to 10 years, driven by the long-term mega-trend of AI.

Vertiv's orders up 252% year-over-year, with a book-to-bill ratio of 2.9x are figures that tell the story of the rapid demand in this market.

However, high growth = high risk.

One must be cautious of fluctuations in hyperscaler CapEx, changes in technology trends, and valuation risks.


I hope this article has helped deepen your understanding of the data center cooling sector.

Thank you for reading until the end.
If you liked it, please give it a 'like' or leave a comment!


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