Modine Manufacturing Shares Drop Over 7% for Second Straight Day

Shares of Modine Manufacturingare trading lower for a second straight session, adding to Tuesday's losses following NvidiaCEO Jensen Huang's comments at the Consumer Electronics Show. The chip giant's CEO said that Rubin chips could be cooled without water chillers, sending shares of other U.S. heating, ventilation and air conditioning-related companies - including Aaon, Johnson Controlsand Trane Technologies- into negative territory as well. DA Davidson believes Nvidia could be attempting to replace the data center cooling architecture with dry cooling or potentially evaporative cooling instead of mechanical chillers, noting Modine also makes dry coolers today.RUBIN PLATFORM:Nvidia launched the Nvidia Rubin platform, comprising six new chips designed to deliver one AI supercomputer. "Rubin arrives at exactly the right moment, as AI computing demand for both training and inference is going through the roof," said Jensen Huang, founder and CEO of Nvidia during CES. The chip giant's CEO also said it could be possible to cool racks with Nvidia's next-generation Rubin chips using water at a temperature that does not require a water chiller."With our annual cadence of delivering a new generation of AI supercomputers - and extreme codesign across six new chips - Rubin takes a giant leap toward the next frontier of AI." The Rubin platform introduces five innovations, including the latest generations of Nvidia NVLink interconnect technology, Transformer Engine, Confidential Computing and RAS Engine, as well as the Nvidia Vera CPU.Haung said the company's next generation chips are in "full production" and can deliver five times the AI computing of the company's previous chips. According to the executive, the chips are expected to arrive later this year and are already being tested by AI companies.INCREMENTAL NEGATIVE:Discussing the comments made at CES, Morgan Stanley says the firm takes the update as an incremental negative for the legacy Commercial HVAC providers - Trane Technologies, Johnson Controls, and Carrier Global, albeit more muted than the headlines suggest. Conversely, the firm finds the commentary incrementally positive for Liquid Cooling exposure – Vertivand Eaton. More broadly, efficiency Data Center gains screen negative for Power exposure, like Eaton, Emersonand Hubbell. These efficiency gains push the AI cycle towards adopters and away from enablers – a positive for the firm's U.S. Reshoring call where structural tech diffusion will narrow the cost delta between U.S. manufacturing and international peers.DRY COOLING:Post close, during a keynote at CES, Nvidia's Jensen Huang made comments regarding the cooling requirements for its new Vera-Rubin chip suggesting that a chiller would not be needed within the associated data center due to the chip's ability to withstand higher temperatures than Blackwell, DA Davidson notes. The firm believes that Nvidia could be attempting to replace the data center cooling architecture with dry cooling or potentially evaporative cooling instead of mechanical chillers, noting Modine also makes dry coolers today. Davidson further notes Modine is adding "considerable adiabatic capacity as we speak," including at a dedicated new plant in WI. The firm reiterates a Buy rating on Modine with a price target of $200 on the shares.BUY TRANE, JOHNSON CONTROLS:Melius Research upgraded Trane and Johnson Controls to Buy from Hold, with the catalyst in part being Tuesday's correction, after both traded down following comments from Nvidia at CES around future cooling architectures that will reduce, or potentially eliminate, the need for chillers. While the firm does not expect this "smart" evolution to be as negative for cooling suppliers as the stock reactions would suggest, the drivers of the current applied HVAC "supercycle" are far broader than just data center.Supply chain localization/reshoring, replacement of aging units, higher electricity prices while more efficient systems shorten payback periods, and local decarbonization mandates are all helping drive outsized growth across a wide array of verticals, Melius adds.PRICE ACTION:In afternoon trading, shares of Modine have dropped more than 7% to $120.40.