Comfort Systems USA delivered another quarter of blockbuster earnings, but that wasn't enough to buoy shares of the HVAC and electrical company.
Instead, Comfort Systems stock plunged 12% to $1,129.93 on Friday, putting it on pace toward its largest daily percent decrease since January 2025 and placing it among the worst performers in the S&P 500 for the session, according to Dow Jones Market Data. Shares have stumbled 32% in October, but remain up 21% for the year.
On Thursday, the company reported adjusted earnings of $13.91 a share for its third quarter on Thursday, exceeding Wall Street's projection for $12.85 a share, according to FactSet. Revenue surged 54% year over year to $3.7 billion, topping consensus expectations of $3.4 billion.
CEO Brian Lane described the results as "extraordinary" in an earnings release, citing "relentless demand." He pointed to Comfort Systems' backlog nearly doubling to $17.81 billion, compared with $9.3 billion a year ago.
Comfort Systems has emerged as an unlikely winner of the broader artificial-intelligence buildout, with shares outpacing even the likes of Nvidia in recent years. The company supplies the cooling and electrical infrastructure needed to keep power-hungry data centers running.
Still, signs of pressure on Comfort Systems' profit margins might have raised red flags about whether the company can sustain its rapid growth. More broadly, investors have been questioning whether the AI spending boom can maintain its red-hot pace, and AI-related stocks have taken a hit as a result.
Gross margin narrowed to 24.8% in the third quarter amid rising labor expenses, down from 25.9% in the prior quarter, though it was unchanged year over year. Operating margin slipped to 16.6% from 17.1% sequentially, but improved from 15.5% from the year-ago period.
Goldman Sachs has also questioned the sustainability of the AI spending boom that has fueled Comfort Systems' growth.
In a note earlier this week, Goldman analysts lowered their price target for Comfort Systems stock to $1,875 from $2,159 while maintaining a Buy rating. They noted that valuations across construction and engineering stocks have fallen 14% since second-quarter earnings, as investors question whether tech companies can withstand their massive data-center spending beyond 2027.
Growing legislative scrutiny of data-center development could also pose headwinds for companies exposed to the industry, the analysts said.
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