Riding the AI Data Center Cooling Wave: Modine's 5-Year Runway

Core Insights - Artificial intelligence is driving significant growth in data center construction, with cooling becoming a critical challenge that impacts expansion speed [1] - Modine Manufacturing (MOD) is strategically positioned to capitalize on this trend, with record orders and plans for aggressive capacity expansion that could reshape its earnings over the next five years [2] Data Center Growth - Modine's data center sales increased by 31% sequentially in fiscal Q3 2026, with expectations for revenues exceeding $400 million in the fourth quarter [3] - The company has a record order book, with a five-year visibility on engagements increasingly structured around long-term supply agreements [4] Cooling Capacity Demand - For hyperscalers, securing cooling capacity is now as crucial as securing power, with production slots and delivery timelines gaining importance alongside technology performance [5] - Management projects annual growth of 50-70% in the data center business over the next two fiscal years, with capacity to support this growth expected by the end of fiscal 2027 [6] Expansion of Product Offerings - Modine is expanding its Climate Solutions portfolio beyond core cooling, having acquired several companies to enhance capabilities in heating, ventilation, and air handling [7][8] - The company is targeting the commissioning of eight chiller lines by fiscal year-end, with a long-term goal of approximately 20 lines by early fiscal 2028, representing a 125% cumulative capacity expansion [9][10] Competitive Landscape - Modine operates in a competitive environment alongside established players like Vertiv and Johnson Controls, both of which have strong positions in AI-driven data center cooling [12] - Vertiv benefits from deep relationships with hyperscalers and offers integrated thermal management solutions, while Johnson Controls provides a broad range of HVAC and building solutions [13][14] Future Outlook - Modine's aggressive scaling aims to capture the growing demand for AI-driven data center cooling, supported by multi-year visibility and expanding capacity [15] - The long-term expected EPS growth rate for Modine is projected at 34% [15]