UBS released a report indicating that NVIDIA's (NVDA) statements regarding next-generation chip cooling technology at CES are prompting investors to reassess potential winners and losers in the evolving data center infrastructure landscape. UBS analyst Amit Mehrotra stated in a report released on Tuesday that NVIDIA's description of its upcoming Vera Rubin platform suggests some high-performance AI systems may no longer rely on traditional mechanical chillers under specific climate conditions, which would alter the economic model of data center heat dissipation. NVIDIA claims its latest chips operate at higher temperatures and can be cooled using warm liquid at approximately 43-46 degrees Celsius without compromising performance. This warm water can subsequently be cooled via "natural cooling" techniques that rely on outdoor environmental conditions rather than energy-intensive mechanical chillers. Mehrotra emphasized: "The key point is that this new technology primarily impacts the method of heat dissipation." He noted that the core of the transformation lies in innovating how heat is expelled, rather than completely eliminating cooling infrastructure. Beneficiaries: Cooling Tower and Dry Cooler Manufacturers UBS believes this technological evolution is overall positive for cooling tower and dry cooler manufacturers, as these devices can achieve heat dissipation without compressors. Mehrotra specifically identified Vertiv (VRT) as a potential beneficiary, with its DX Thermal series products holding a dominant position in the dry cooler system market. The analyst also views the impact on Modine Manufacturing (MOD) as "neutral to slightly positive" – the company's air-cooled chillers can integrate natural cooling functionality, reducing reliance on compressors when outdoor conditions permit. Chillers Not Exiting the Stage Despite views suggesting NVIDIA's chips could make chillers obsolete, UBS disputes this interpretation. Mehrotra stated that mechanical chillers will remain a core component of data center design for the foreseeable future. Most data centers operate on a hybrid model, with only specific racks dedicated to AI loads, while broader facilities still require traditional air-cooled systems. Furthermore, most installed chips still need air cooling or lower-temperature liquid cooling, both of which depend on water-cooled mechanical chillers. Geographical factors are also crucial. UBS points out that NVIDIA's warm liquid cooling concept faces significant limitations in hot climate regions like Texas and Arizona – where outdoor temperatures may approach or exceed liquid loop temperatures, reducing the feasibility of natural cooling. Differentiated Impact on Integrated HVAC Companies For comprehensive heating, ventilation, air conditioning, and industrial equipment companies like Trane Technologies (TT) and Johnson Controls (JCI), UBS believes the NVIDIA-driven industry shift will bring a "neutral to slightly negative" impact. However, Mehrotra emphasized that both companies are still expected to achieve significant growth in the coming years, with Johnson Controls' performance improvement primarily stemming from its own margin enhancement plans rather than relying solely on data center business. Overall, UBS interprets NVIDIA's CES remarks as representing a gradual innovation rather than a disruptive shock for cooling equipment manufacturers, with the essence being a reallocation of demand among different technologies rather than demand disappearance. As Mehrotra stated, even if natural cooling solutions play a more important role in specific applications and climate conditions, chillers "will remain an indispensable part of the data center infrastructure ecosystem."
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