Two Paths to AI Cooling — Modine vs Carrier

TL;DR Modine (MOD) is a 17-bagger transformation story. Carrier (CARR) is a giant that has only returned ~55% in five years. Both are seeing explosive datacenter order growth. Picking between them is the classic growth-versus-stability trade.

Why Cooling Is the New Bottleneck

NVIDIA's next-generation AI racks pull 132 kW. That's nearly 10x what a traditional server rack draws. The blunt truth is that you cannot air-cool that kind of thermal load — physics says no. So the shift to liquid cooling isn't optional, it's mandatory. Two names are positioned to capture that pivot directly.

Modine Manufacturing (MOD) and Carrier Global (CARR). Same trend, very different bets.

Option A — Modine Manufacturing

Modine is the smallest pure play in the cooling layer. It also has the most dramatic financial transformation in the basket.

Five years ago, fiscal 2021 Modine ran a -5.4% operating margin. They were a struggling auto parts supplier — basically on the takeover block. Four years later, that margin has flipped to +11%, EPS swung from a loss of over $4 to solid profit, and the stock has returned roughly 17x.

The engine of that turnaround is clear: liquid coolant distribution units, immersion systems, and thermal management gear for AI racks. Climate Solutions revenue grew 51% YoY last quarter; datacenter revenue specifically grew 78%.

Modine — What I Like

• Datacenter mix is rising fast, moving closer to pure-play status
• Small market cap means single-digit revenue growth amplifies into double-digit EPS growth
• Still feels like a "recently discovered" name with room

Modine — What I Watch

• Legacy auto parts business still adds volatility
• Already a 17-bagger — entry is the hard part
• Small-cap volatility profile

Option B — Carrier Global

Carrier is the opposite starting point. One of the largest commercial HVAC companies in the world, with datacenters as just one slice of a massive business.

Five-year return is roughly 55% — the lowest in the entire stock basket on the source list. Operating margin has actually contracted from the high teens to under 10%, weighed down by the Viessmann integration and the divestiture of the fire and security business.

So why does Carrier earn a place? Because their most recent quarter showed global datacenter orders up over 500% YoY. The datacenter backlog already fully covers the $1.5B full-year sales target, with room to exceed it.

The integrated "Quantum Leap Data Center" offering — precision chillers + coolant distribution units + building management software bundled — has booked $300M–$400M in its first year. Carrier is also publicly working with NVIDIA on next-generation AI infrastructure cooling designs.

Carrier — What I Like

• Large cap, stable financials, limited downside
• Direct NVIDIA partnership suggests reference-design inclusion
• Lagged the basket on price — valuation margin of safety exists

Carrier — What I Watch

• Datacenter is a small slice of total revenue, so explosive segment growth dilutes
• Acquisition integration still pressuring margins
• The huge legacy business could mask datacenter momentum for years

Head-to-Head

Metric	Modine (MOD)	Carrier (CARR)
5-year return	~17x	~55%
Business focus	Datacenter mix rising fast	One slice of broad HVAC
Operating margin trend	-5.4% → +11% (expanding)	High teens → <10% (compressing)
Latest DC growth	Revenue +78%	Orders +500%+
Market cap	Small	Large
Direct NVIDIA partnership	Partial	Public, formal
Risk profile	Volatile growth	Stable value with optionality

How I'd Play It

These are bets on the same trend from different angles, and I don't think owning both cannibalizes. If I had to weight, I'd add Modine in tranches on pullbacks (post-explosion entries are tricky) and give Carrier a larger base allocation since it has lagged the basket — while tracking integration-driven margin recovery quarter by quarter.

FAQ

Q: Is air cooling going away entirely? A: No, not for general workloads. But for GPU clusters — especially training clusters — liquid cooling has effectively become the standard. The broader market will run hybrid for a while.

Q: What does the NVIDIA partnership actually mean? A: It means inclusion in reference designs as a recommended component. When hyperscalers order new datacenters, they tend to default to NVIDIA-recommended parts, which functions like a revenue lock for the supplier.

Q: When does immersion cooling go mainstream? A: Direct-to-chip liquid cooling will dominate near-term. Immersion requires too much infrastructure rework and is likely to remain greenfield-only for several years.