Bernstein: Data center chillers are still optimistic about TT.US (TT.US) and Johnson Controls (JCI.US) without an “existential crisis” in the short term

The Zhitong Finance App learned that Bernstein's latest data center chiller industry research report shows that market concerns about whether next-generation AI data center architectures require chillers are heating up, but through interviews with 5 hyperscale cloud vendors, new cloud service providers, and OEM procurement leaders, the bank believes that demand for chillers is still strong, supply continues to be tight, and there is no “survival crisis” to be replaced in the short term. Bernstein maintained the TT.US (TT.US) “outperform the market” rating and target price of $555, maintained the Johnson Controls (JCI.US) “outperform the market” rating and target price of $194, and gave Carrier (CARR.US) a “equal” rating with a target price of $63.

Strong demand and tight supply: delivery times of up to 12 to 18 months

Experts pointed out that the longest delivery cycle for chillers is about 12 to 18 months, and in the past it was generally lengthened by about 1 to 1.5 years. The bottleneck is not only the OEM's production capacity, but also involves key sub-components such as fans, compressors, and controls, as well as customization and engineering requirements. Some relief may occur as OEMs expand production and relax restrictions on sub-component procurement, but short-term supply remains tight.

Johnson Controls has the highest rating among large chiller/HVAC OEMs

In Bernstein's expert score card, Johnson Controls ranked highest overall, followed by Carrier and Trane. Johnson Controls received particularly positive feedback on product/service capabilities, including its extensive field service network. Carrier also performed well in terms of service capabilities, but feedback on functionality/delivery was mixed. Trane's product functionality/quality remains solid, but experts rated its cost/delivery low. One expert mentioned supplier purchase order delays/internal coordination issues (involving Stellar's chiller manufacturing department). Japanese Daikin is generally considered cost competitive and has solid functionality/quality, but delivery feedback is mixed.

Service is important, but it's not a moat for OEMs

OEMs are still the first choice for warranty/mission critical work, but most experts prefer to use a third-party service provider after the warranty period due to greater bandwidth, faster response, greater geographical proximity, and sometimes lower costs. One expert believes that third-party service providers are better able to meet strict response time requirements (some hyperscale cloud vendors require around 4 hours). This echoes Bernstein's previous analysis of the service layout of chiller OEMs: Johnson Controls has the largest commercial service network in North America, with 270 outlets, 143 Trane, and 88 Carrier, but all three cover the vast majority of existing data center capacity (about 80% or more within a 30-mile radius).

Chillers will not disappear in the short term, but marginal demand may decrease

Experts agree that due to factors such as climate, workload combination, and reliability/redundancy requirements, chillers cannot be completely replaced in the short term. Dry coolers are less effective in hotter climates (such as Phoenix and Dallas). Not all workloads use liquid cooling, and mechanical cooling is still meaningful for a wider range of facilities and electrical equipment. As a result, the operators interviewed continued to budget for chillers in the future design of their multi-year roadmap.