I Found Two AI Cooling Stocks. Only One Wins.

The AI data center trade is moving downstream.

Semiconductors and GPUs came first.

Then power, construction materials, and electrical equipment.

Many of the companies supplying those products have already delivered enormous returns.

But every new data center eventually runs into the same physical constraint…

My read on the August PMI reports confirm that this buildout remains not only active, but now in high demand for the electrical components necessary to keep data centers cool.

In fact, many of these have gone into shortages.

But I wasn’t interested in simply finding another AI cooling company.

I wanted to know which company could convert that demand into the most aggressive earnings swing.

As market forces would have it, AAON Inc. (AAON) plotted above is one of those perfectly balanced stories combining above-average earnings growth with a justified forward P/E premium rooted in high expectations.

Last quarter, AAON reported:

Despite a gross margin contraction of 2.3%.

At first glance, that looks contradictory, but it’s not…

This means AAON is operating with industry-leading operating leverage, allowing its earnings to outpace the growth in revenue costs as seen in declining gross margins.

Now there’s a problem.

If AI spending, and thus data center budgets, are affected as most CEOs now call to slow down the technology’s development.

Then everything I just mentioned as a net benefit for AAON will quickly turn into a liability.

So I went looking for the other side of that trade.

That’s where Johnson Controls International (JCI) comes into play.

Larger, more diversified, and trading at less than half AAON’s forward P/E.

But there’s a very specific reason why it works perfectly as a hedge if my call on AAON ends up being wrong.

… And it’s not found in the numbers.

Today, I will walk you through my reasoning behind these two picks, how to hedge them correctly, and where to pinpoint your levels on a pairs trade basis.

By the way, this trade was already put on and alerted for Premium members (you are now ~3% in profit since.)

Let’s get into it.

I found two AI cooling stocks. Only one wins.