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

Artificial intelligence is driving a massive buildout of data centers — and cooling is becoming one of the biggest challenges. As computing power increases, managing heat is no longer just a technical detail. It is now a critical factor that can limit how fast hyperscalers expand capacity.

Modine Manufacturing MOD is positioning itself to benefit from this shift. With record orders, multi-year visibility, and aggressive capacity expansion, the company is building a data center business that could significantly reshape its earnings profile over the next five years.

Cooling Takes Center Stage in Data Centers

Modine’s data center sales rose 31% sequentially in fiscal third-quarter 2026. Management pointed to meaningful incremental volumes in the fourth quarter, with implied quarterly revenues exceeding $400 million.

More important than the quarterly surge is the order book. Record intake — roughly split between chillers and broader data center products — has extended visibility to approximately five years. Engagements are increasingly structured around long-term supply agreements, reflecting a shift in customer behavior.

For hyperscalers, securing cooling capacity is becoming as critical as securing power. Production slots and delivery timelines now matter as much as technology performance. That structural change is reinforcing demand durability.

Modine Manufacturing Company Price, Consensus and EPS Surprise

Modine Manufacturing Company price-consensus-eps-surprise-chart | Modine Manufacturing Company Quote

Scaling for the Next Wave

Management is guiding for 50-70% annual growth in the data center business over the next two fiscal years. Capacity to support that trajectory is expected to be in place by the end of fiscal 2027, with additional chiller lines coming online in fiscal 2028.

The current capital plan supports outcomes up to roughly $3 billion in potential data center revenues. Long-term capacity agreements further enhance revenue predictability.

From Products to Platforms

Modine is broadening its Climate Solutions portfolio beyond core cooling. In fiscal 2024, it acquired Scott Springfield Manufacturing and key operating assets of Napps Technology. In fiscal 2026, it added AbsolutAire, L.B. White, and Climate by Design International.

These businesses expand capabilities into direct-fired heating, specialty heating and ventilation, desiccant dehumidification, and critical process air handling. The result is a more comprehensive platform spanning chillers, air handling units, modular data center systems, and broader commercial HVAC solutions.

The Chiller Line Expansion Playbook

Execution is central to the thesis. Four new chiller lines were commissioned in fiscal third-quarter 2026, with four more scheduled in the fourth quarter. Management is targeting eight lines by fiscal year-end.

The longer-term roadmap calls for roughly 20 chiller lines by early fiscal 2028 — about 125% cumulative capacity expansion over two years. These lines are designed with flexibility, convertible to modular data center units or large air handling systems.

Rapid scaling introduces operational complexity across supply chain, labor, and quality control. The opportunity is substantial — but disciplined execution will ultimately determine how much of this cooling boom translates into sustainable earnings growth.

Competitive Landscape— Vertiv and Johnson Controls

In AI-driven data center cooling, Modine operates alongside established infrastructure players such as Vertiv Holdings VRT and Johnson Controls JCI.

Vertiv is one of the most direct beneficiaries of hyperscale and AI capacity expansion. The company provides integrated thermal management, power infrastructure, and monitoring systems specifically designed for high-density data centers. Its end-to-end positioning and deep relationships with hyperscalers give it strong visibility into next-generation buildouts.

Johnson Controls, while broader in scope, is a major global HVAC and building solutions provider with growing exposure to mission-critical cooling systems. Its scale, service network, and diversified building technologies platform offer stability, though data centers represent just one part of its overall portfolio.

Last Word

Modine is scaling aggressively to capture AI-driven data center cooling demand, backed by multi-year visibility and expanding capacity. The opportunity is significant — but sustained execution will determine how much of this cooling cycle translates into durable earnings growth. The long-term expected EPS growth rate for MOD is 34%.

Modine currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research