Will data centers welcome a “cooling revolution”? UBS: Nvidia's technology is transforming or reshaping the industry's “card game”

The Zhitong Finance App learned that UBS released a report stating that Nvidia (NVDA.US)'s statement on next-generation chip cooling technology at CES is prompting investors to re-evaluate the potential winners and losers in the data center infrastructure evolution process.

UBS analyst Amit Mehrotra said in a report released on Tuesday that Nvidia's description of its upcoming Vera Rubin platform shows that some high-performance AI systems may no longer rely on traditional mechanical chillers to operate under specific climatic conditions, which will change the economic model for data center cooling.

Nvidia claims that its latest chip operates at a higher temperature and can be cooled with warm liquid of about 43-46 degrees Celsius without affecting performance. This warm water can then be cooled by “natural cooling,” a technology that relies on outdoor environmental conditions rather than energy-intensive mechanical chillers.

Mehrotra emphasized, “The key point is that this new technology mainly affects the way heat is cooled.” He pointed out that the core of the transformation is innovation in how heat is discharged rather than completely abolishing cooling infrastructure.

Beneficiaries: Cooling tower and dry cooler manufacturers

UBS believes that this technological evolution will benefit cooling tower and dry cooler manufacturers as a whole; these devices can dissipate heat without a compressor. Mehrotra specifically pointed out that Vertiv (VRT.US) is a potential beneficiary, and its DX Thermal series products occupy an advantageous position in the field of dry cooler systems.

The analyst also believes that the impact on Modine Manufacturing (MOD.US) is “neutral to positive” — the company's air-cooled chillers can incorporate natural cooling to reduce dependence on compressors when outdoor conditions permit.

The chiller did not leave the stage

Despite opinions that Nvidia chips may have eliminated chillers, UBS disputes this interpretation. Mehrotra said that in the foreseeable future, mechanical chillers will remain a core component of data center design.

Most data centers use a hybrid operating model, with only some racks dedicated to AI loads, while a wider range of facilities still require traditional air cooling systems. Additionally, most installed chips still require air cooling or cooler liquid cooling, both of which rely on water-cooled mechanical chillers.

Geographic factors are also critical. UBS pointed out that the effectiveness of Nvidia's temperature-liquid cooling concept is greatly limited in hot climate regions such as Texas and Arizona — local outdoor temperatures may approach or exceed the liquid circuit temperature, making natural cooling less viable.

Differentiation of impacts on integrated HVAC enterprises

For integrated HVAC and industrial equipment companies such as Trane Technologies (TT.US) and Johnson Controls (JCI.US), UBS believes that the Nvidia-driven industry transformation will have a “neutral to slightly negative” impact. However, Mehrotra stressed that the two companies are still expected to achieve significant growth in the next few years. Among them, the improvement in Johnson Controls' performance mainly stems from the company's own profit margin improvement plans rather than just relying on the data center business.

Overall, UBS interpreted Nvidia's CES remarks as a gradual innovation rather than a disruptive shock to cooling equipment manufacturers. The essence is a redistribution of demand between different technologies rather than the disappearance of demand. As Mehrotra said, even if natural cooling solutions play a more important role in specific applications and climatic conditions, chillers “will still be an integral part of the data center infrastructure ecosystem.”