An under-the-radar industrial stock is a safe way to bet on the AI boom, Bank of America says

Financial institution of America upgraded Johnson Controls to ‘Purchase’ for its publicity to AI knowledge facilities.

Johnson Controls is a high supplier of thermal cooling gear and different knowledge heart options.

The corporate is looking for a brand new CEO, which is seen as a optimistic catalyst by Financial institution of America.

Johnson Controls is the inventory to purchase for secure publicity to the AI growth, in keeping with a notice this week from Financial institution of America.

The financial institution upgraded shares of Johnson Controls to “Purchase” from “Impartial” and elevated its value goal to $80 from $76, representing potential upside of about 15% from the place the inventory was buying and selling on Thursday.

The financial institution mentioned the commercial firm that sells every part from safety cameras to HVAC techniques offs buyers publicity to “best-in-class knowledge heart property.”

“We discover that JCI is the second-largest supplier of thermal gear (~15% market share), with main market share in chillers. JCI additionally sells constructing automation techniques, safety, and fireplace safety gear into knowledge facilities,” Financial institution of America analyst Andrew Obin mentioned.

Johnson Controls will generate about $4 billion in income from knowledge facilities this 12 months, representing about 14% of its enterprise. That’s greater than triple the info heart publicity its closest rivals have, together with Trane Applied sciences and Provider.

One in every of Johnson Controls’ best-selling merchandise to datacenters is liquid-cooling techniques, which assist distribute and offset the immense warmth generated by AI-focused servers.

“One megawatt of energy provided to an information heart requires roughly 285 tons of cooling, much like the necessities for a 115,000 sq. foot industrial constructing,” Obin defined.

And that is the place Johnson Management’s water-cooled centrifugal chiller and laptop room air dealing with merchandise come into play.

As for a possible catalyst for Johnson Controls, other than its knowledge heart publicity, Financial institution of America highlighted its ongoing seek for a brand new CEO.

“We count on a brand new CEO announcement earlier than the top of the 12 months and examine this as a optimistic catalyst. Mixed with activist investor involvement, we consider this doubtlessly indicators a brand new strategic course for the corporate,” Obin mentioned.

Lastly, Johnson Controls presents buyers an interesting margin of security relative to different AI shares which have been high-fliers over the previous 12 months.

That is as a result of Johnson Controls inventory is buying and selling at a big valuation low cost relative to its closest rivals. Its ahead price-to-earnings ratio of 18x is even decrease than the broader S&P 500’s valuation of about 21x.

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“JCI hypothetically re-rating totally in step with the typical of those HVAC friends would suggest a 57% increased valuation,” Obin mentioned.

Shares of Johnson Controls have been on a tear this 12 months as buyers get up to its AI knowledge heart publicity, with the replenish up 22% year-to-date.

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