The best-performing stocks of the AI build-out are not all chip designers. Vertiv, founded in 1946 and in the business of keeping data centers from overheating, has gone from a market value under $11 billion at its 2021 listing to $109 billion, an annualised return of 50.5% over six and a half years.

That places it third in the S&P 500 for the period, behind Comfort Systems at 55.2% and Nvidia at 54.9%. Comfort Systems installs heating, ventilation and plumbing. So of the three best returns of the AI era, two came from companies that move air and water.

Why cooling became the constraint

An AI accelerator draws far more power than the processors data centers were designed around, and essentially all of that power ends up as heat in a confined space. Traditional air cooling reaches a limit: past a certain density, no volume of moving air removes heat fast enough, and the room has to be spread out instead.

Vertiv's answer is direct-to-chip liquid cooling. A water and glycol mixture runs through tubes roughly the width of a straw into a cold plate sitting directly on top of the semiconductor. Liquid carries heat away far more effectively than air, which allows the chips to be packed much closer together. Fortune reports the technique cuts the floor area needed for a given amount of computing by 50% to 70%.

That number is the entire investment case. In a market where the binding constraints are electricity and buildable land, halving the space required for the same compute is worth a great deal to whoever is paying for the building.

How the company got there

Vertiv's predecessor was Emerson Electric's network power arm, which built the first precision cooling systems for IBM mainframes. Emerson sold it to the private equity firm Platinum Equity, which struggled with a business still centred on air cooling.

In early 2020 an investor group assembled by Goldman Sachs bought it for $4 billion through a special purpose acquisition company and listed it, with David Cote as chief executive. Cote had run Honeywell for fifteen years, and before that spent 25 years at General Electric, where Jack Welch fired him in 1999.

His account of the decision is unusually candid. "It was not like I was an AI savant," he told Fortune, "but I knew that if I positioned myself in the middle of the data industry there was a good chance something good would happen." He looked at more than a thousand companies with the Goldman group first.

What was actually done

Three things, and none of them was predicting AI.

Research spending went from 3% of sales to 6%, on much higher revenue. The board replaced the chief executive in January 2023 with Giordano Albertazzi, a mechanical engineer, who describes the shift to direct-to-chip cooling as "like moving from a Toyota to a racing car". And in December 2023 Vertiv bought CoolTera, a British startup working on the technology, then tripled production in three years and opened a 215,000 square foot plant in South Carolina in October 2024.

It is worth remembering how uncertain this looked at the time. During the 2023 downturn the shares traded as low as $13, down roughly 55% from a high near $29 eighteen months earlier.

What it says about the cycle

Cote's framing of the opportunity is the useful part: when he arrived, data generation was growing at 20% a year while data centers were growing at 4%. The gap was the business.

The wider lesson for anyone trying to invest in a technology shift is that the returns did not require identifying the winning model, chip architecture or application. They required owning a physical bottleneck that any winner would have to pay to get past.

Boursel has reported this week on the same constraint from several directions: Nvidia buying into the companies that secure electricity for data centers, power and grid capacity limiting where facilities can be built in Southeast Asia, and the bond market charging more to finance the buildings. Cooling is the same story at a smaller scale, and it has produced two of the three best returns in the index.

The market is aware of it now, which is the difference between 2020 and today. Vertiv trades at a valuation that already assumes the density problem persists and that it keeps the leading share of a data-center cooling market Fortune cites as running above $30 billion, with Grand View Research projecting $128 billion by 2033.