The liquid cooling industry, propelled by the AI revolution, is witnessing a stark contrast between booming revenues and shrinking profits. Recent quarterly reports from major players highlight a challenging transition from a "technology blue ocean" to a "scale red ocean."
On the evening of April 24, Shuguang Shuchuang (920808) disclosed its first-quarter report for 2026. The company achieved revenue of 103 million yuan, a surge of 782.53% year-over-year. However, it reported a net loss attributable to shareholders of 47.5953 million yuan, a decrease of 51.71% compared to the same period last year.
Previously, another liquid cooling leader, Envic (002837), released its Q1 2026 report, showing revenue of 1.175 billion yuan, up 26.03% year-over-year. Its net profit attributable to shareholders was only 8.6576 million yuan, plummeting by 81.97%.
During an earnings conference on April 23, Envic management was repeatedly questioned by investors: "Why is revenue growing without a corresponding increase in profit?" Executives provided three explanations: increased financial expenses due to RMB appreciation leading to exchange losses, alongside larger financing scale and higher interest payments; increased credit impairment losses; and a 2.16 percentage point year-over-year decline in gross margin due to changes in the revenue mix for the quarter.
In essence, the phenomenon of "revenue growth without profit growth" is representative for these leading companies in China's liquid cooling sector.
Affected by the sharp decline in Q1 earnings, Envic's stock price, which had risen significantly previously, experienced a continuous correction from April 21st to 25th, falling over 20% in four days, with its market capitalization dropping below 100 billion yuan. Shuguang Shuchuang's share price also showed a pattern of rising then falling this week, with its latest market cap at 15.7 billion yuan.
**Revenue Growth Without Profit** The explosive growth of the liquid cooling market is fundamentally driven by the exponential increase in AI chip power consumption and strict global controls on data center energy efficiency. AI chips, represented by NVIDIA's GB200, have thermal design power (TDP) as high as 1200W, which traditional air cooling can no longer meet, directly driving the rapid adoption of liquid cooling.
Domestic telecom operators, as key demand sources, have widely adopted liquid cooling solutions in their new AI computing centers. For instance, in China Mobile's latest 2026-2027 PC server procurement, ARM architecture servers accounted for 65.01%, and these servers commonly use liquid cooling for stable operation. Previously, in the 2023-2024 procurement, liquid-cooled servers accounted for a high 87%.
These factors form a solid foundation for the liquid cooling market to achieve large-scale volume growth from 2025 to 2026. Shuguang Shuchuang stated in its 2025 annual report that the industry expects the proportion of liquid cooling in new data centers to rise to around 40% in 2025. Data from the Zhongshang Industrial Research Institute shows that China's liquid-cooled data center market size is expected to increase from 11.01 billion yuan in 2024 to 31.08 billion yuan in 2027.
The sustained growth in liquid-cooled data center scale has driven revenue growth for listed companies' liquid cooling-related businesses. However, in sharp contrast to revenue growth, the overall profitability of the industry is under significant pressure, making "revenue growth without profit growth" a common phenomenon.
Throughout 2025, Envic's gross margin gradually declined after peaking in the third quarter. Shuguang Shuchuang, a leader in domestic immersion liquid cooling technology, saw revenue for its cold plate liquid cooling products increase by 40.01% year-over-year in 2025, but its gross margin fell from 25.84% in Q4 2024 to 10.36%. Even for its most technologically advanced immersion liquid cooling products, the gross margin decreased by 13.52 percentage points compared to the previous year.
Other domestic companies involved in liquid cooling, such as Gaolan Co., Ltd. (300499), Tongfei Shares (300990), and Wangsu Science & Technology (300017), while not disclosing gross margins for their liquid cooling business separately, still show clear declines in product毛利率 involving liquid cooling within their consolidated businesses.
**Structural Shift in Demand** The gross margins of the aforementioned listed companies with liquid cooling businesses clearly indicate that while the industry's revenue scale is expanding, profit margins per unit product are being rapidly compressed.
In reality, the main demand sources in the liquid cooling market have undergone significant evolution. It has rapidly diversified from a single structure highly dependent on NVIDIA AI servers into three forces: the "NVIDIA camp," the "self-developed chip camp," and "domestic operators/internet giants." This change has reshaped the underlying logic of demand characteristics and price negotiations.
AI servers represented by NVIDIA's GB200, GB300, and their next-generation platforms, with chip power consumption reaching kilowatt levels, constitute the most direct and rigid demand source for liquid cooling, forming the cornerstone of market growth. Hyperscale cloud providers like Google, Microsoft, and Meta, aiming to optimize computing costs and supply chain autonomy, are accelerating the development of self-developed chips. Shipments of these chips are expected to reach millions by 2026, becoming a new, independent growth pillar for the liquid cooling market. Large-scale procurement by domestic operators and internet giants forms the third growth driver.
Diversification of the customer base means liquid cooling suppliers now face competitive pressures across different dimensions: technical performance, customized services, and extreme cost control. Meanwhile, the dispersion of demand sources, while expanding the total market, weakens the absolute influence of any single customer group on suppliers, making price a key factor for gaining market share, especially in domestic procurement markets.
The rise of large-scale domestic procurement demand, which is extremely cost-sensitive, is the main force changing market pricing logic. The extreme cost focus of these procurement customers first squeezes the profit margins of system integrators and whole-machine manufacturers. This pressure is then passed upstream, significantly compressing profits for standardized component suppliers (like coolant, ordinary piping joints) that cannot provide differentiated value and operate in fully competitive markets. Only leading manufacturers with core component technology or full-stack solution capabilities can maintain relatively better profit levels.
This micro-level foundation ultimately manifests in financial data as widespread gross margin decline. However, the degree of pressure and the extent of margin decline vary significantly among different manufacturers due to differences in customer structure and product positioning.
**Rapid Expansion of Supply** Driven by the certainty of exploding demand, the supply side of the liquid cooling industry is undergoing rapid capacity expansion.
"After months of capacity optimization and expansion, the company's current capacity can meet the requirements of existing orders and major tracked overseas demand, with no bottlenecks," was the reply from Envic executives when discussing capacity issues.
Clearly, leading liquid cooling companies have long been prepared for business expansion, while followers are still rushing to build new capacity. For example, Shenling Environment (301018) announced a convertible bond plan on April 1, aiming to raise 1 billion yuan, with 800 million yuan allocated to a new quality liquid cooling manufacturing base project. Tongfei Shares announced a private placement plan in January this year, aiming to raise 1.2 billion yuan, with 900 million yuan directed towards liquid cooling-related projects.
These enterprises share a similar goal: "to break through production capacity bottlenecks and enhance product delivery capabilities."
In fact, it's not only mainland Chinese manufacturers expanding production; international and Taiwanese manufacturers are also doing so. Taiwanese manufacturers represented by Auras Technology and Asia Vital Components (AVC), as well as international companies like Vertiv and Delta Electronics, are actively expanding capacity. For instance, AVC is building a factory in Thailand and planning a second plant.
There are also companies like Inspur Information (000977) and Luxshare Precision (002475). Due to their large main business scale, they do not disclose liquid cooling business separately. However, the former, as a server leader, has launched an "All in Liquid Cooling" strategy and,凭借 deep binding with chip manufacturers and huge shipment volumes, has become a benchmark for scaled delivery. The latter, leveraging precision manufacturing and supply chain management capabilities from the consumer electronics sector, has significant potential in the liquid cooling business.
Industry insiders believe that the structural characteristics of supply and demand in the liquid cooling industry determine that gross margins will face downward pressure for a considerable period. Strategic price competition or market investments by leading manufacturers to maintain their leading positions and compete for market share will continue, especially in product areas with higher standardization like cold plate cooling.
**Drivers for Gross Margin Improvement** Although the liquid cooling industry is transitioning from a "technology blue ocean" to a "scale red ocean," over time, the cumulative effect of multiple positive factors will gradually emerge, potentially driving a bottoming out and recovery of industry gross margins.
On March 31, 2026, the national standard "Technical Specification for Cold Plate Liquid Cooling Systems in Data Centers," chaired by Shuguang Shuchuang, and the national standard "General Specification for Cold Plate Liquid Cooling Cabinets in Data Centers," which it participated in drafting, successfully passed expert review in Beijing. These new national standards systematically specify technical requirements and testing methods for systems and key components for the first time, providing authoritative basis for product design, production, testing, and acceptance. This promotes the standardization and scaled production of key components, effectively enhancing coordination across the industry chain and reducing costs.
Previously, inconsistent technical routes and varying specifications for cold plate liquid cooling products among manufacturers led to uneven product quality, incompatible interfaces, hindered large-scale deployment and supply chain efficiency, and increased overall costs due to extensive custom development.
The establishment of technical standards is a prerequisite for the systematic recovery of industry gross margins. It will gradually reverse the high-cost, low-efficiency state caused by customization in the industry's early stages.
In addition, the localization of core components, modular design, and the application of intelligent temperature control algorithms will optimize the cost structure on the supply side. For example, in the coolant segment, solutions from companies like Sinopec and Dongyangguang have reduced coolant costs by over 30%. Simultaneously, the continuous explosion in AI computing demand provides a solid foundation for realizing economies of scale. For instance, Inspur Information has demonstrated the potential to leverage scale advantages to control costs through methods like joint development of low-cost coolants.
Most importantly, after intense price competition, the industry will accelerate its concentration towards leading players. The liquid cooling industry will eventually return to a profitable environment based on value competition.
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