AI data centers need massive amounts of cooling. Jenny Harrington is buying this HVAC stock
After a brutally hot summer across the U.S. and Europe, the need for air conditioning has become hard to ignore … which brings me back to a stock we’ve owned for years: Carrier Global . The 111-year-old Florida-based company is one of the world’s largest heating and cooling companies, with products ranging from residential HVAC systems and heat pumps to massive cooling systems for commercial buildings. That puts Carrier at the center of two powerful trends: rising demand for air conditioning and the AI data center buildout. We first bought Carrier for our Disciplined Growth Strategy in March 2021 at around $37 a share. After the stock more than doubled, we took some profits when shares reached about $80 in 2024. Now that it’s back at around $58, we recently bought more. Key points AI is fueling huge demand for data center cooling. As the No. 1 player in residential HVAC and No. 3 in commercial HVAC in the Americas, Carrier is well positioned to benefit from rising cooling demand. The company has streamlined its operations through cost cuts and asset sales, while stepping up share repurchases. Carrier generated $21.7 billion in sales last year, with nearly 30% coming from parts and services rather than new equipment. Its global footprint spans roughly 150 countries and includes about 47,000 employees. Why I’m buying AI data centers need a lot of cooling Data centers generate enormous amounts of heat, and as hyperscalers pack them with more powerful chips, keeping that equipment cool has become even more critical. Carrier’s data center orders increased more than 300% last quarter. And with companies continuing to spend billions of dollars building out AI infrastructure, I don’t see that demand going away anytime soon. There’s more here than just AI What I really like about Carrier is that I don’t need the data center boom for this investment to work. The company’s residential HVAC sales in the Americas grew 9% in the second quarter after a long inventory correction, while industry demand remains well below recent levels. That leaves room for further recovery. Commercial HVAC has a long runway, too. Carrier is benefiting from demand to replace aging heating and cooling systems and gaining share in key markets. Then there’s Europe, where air conditioning is less common and this summer’s extreme may finally be convincing people they need it. A leaner, more focused company Carrier has changed significantly since it was spun off from United Technologies in 2020. CARR YTD mountain Carrier Global, YTD The company has cut costs through restructuring while also reshaping its portfolio. It acquired European heating company Viessmann and sold its fire and security and commercial refrigeration businesses to focus more on climate and energy solutions. Now it’s generating significant cash. Carrier expects about $2 billion in free cash flow this year and has been aggressively buying back stock. It returned about $640 million to shareholders through dividends and buybacks in the second quarter alone. Why now? The stock trades at 18.4 times forward earnings with a 5% free cash flow yield. I think that’s attractive given Carrier’s expected earnings growth of 11%, 15% and 13% over the next three years. Bottom line Carrier gives us several ways to win. And with strong free cash flow and a stock that’s down about 20% from its recent high, I like the risk-reward at today’s price. In a downside scenario, I see the stock falling to around $37, or about 36% below the current price. That’s a risk I’m willing to take given the growth opportunities I see ahead. Disclosures: Harrington owns CARR in Gilman Hill Asset Management. All opinions expressed by the [CNBC Pro contributors] are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. This content is provided as part of our editorial output for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to buy any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above content might not be suitable for your particular circumstances. Before making any financial decisions, you should strongly consider seeking advice from your own financial or investment advisor. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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