While the investing world is largely distracted by thoughts of Anthropic's potential $2 trillion IPO -- an event that's now looking likely to occur next month -- a far smaller player that has been benefiting from the AI build-out has been making gains out of the spotlight. Data center cooling provider Modine Manufacturing (NYSE: MOD) has flown under the radar, but you'll want to pay attention.
Modine transformed itself from an auto parts supplier into a thermal management company, providing technology that prevents data centers from overheating. The company's climate solutions segment is now its most powerful growth channel as it provides necessary components to hyperscalers.
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In Modine's most recently reported quarter (its fiscal 2027 Q1), revenue climbed 28% year over year, but its data center sales rose by 90% to $348.6 million. The company's backlog more than doubled in the same time frame. Management raised its full-year guidance, and now projects that its data center revenue will top $2 billion in fiscal 2028.
Shares are currently well below their 52-week high of $323, but the stock has still risen by more than 280% in the past three years. Its valuation is quite rich because of this incredible growth, with a trailing P/E ratio above 70. Still, Modine has multiyear agreements in the pipeline and room for further growth. And its forward P/E is a more reasonable 24.
Modine still looks like a justifiable buy for long-term investors. There are risks associated with short-term AI infrastructure build-out spending, as well as a high degree of customer concentration in its data center segment. Still, Modine offers a way to invest in the AI infrastructure trend without paying the sky-high valuation multiples currently commanded by chipmakers.
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Catie Hogan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Modine Manufacturing. The Motley Fool has a disclosure policy.
Wall Street Is Obsessed With the Anthropic IPO. Here's the AI Cooling Stock Nobody Is Talking About. was originally published by The Motley Fool