Bank of America recently highlighted Johnson Controls as a compelling stock for investors looking to capitalize on the artificial intelligence (AI) surge. The firm upgraded Johnson Controls from “Neutral” to “Buy,” increasing its price target from $76 to $80. This adjustment suggests a potential upside of around 15% from its current trading price.
Johnson Controls stands out as a significant player in the industrial sector, primarily known for providing thermal cooling solutions essential for data centers. The company’s offerings range from HVAC systems to advanced building automation tools, with a noteworthy focus on data centers—an area expected to significantly expand due to the growing demand for AI technologies.
Analyst Andrew Obin emphasized that Johnson Controls holds approximately 15% market share in thermal equipment and leads the market in chillers. Its expertise is particularly relevant now, with estimates predicting that data center revenues will reach around $4 billion this year, representing 14% of its total business. This is considerably higher than its competitors, including Trane Technologies and Carrier.
A standout product from Johnson Controls is its liquid-cooling systems, designed to manage the considerable heat generated by AI-driven servers. To put it in perspective, one megawatt of power usage in a data center requires about 285 tons of cooling—comparable to the demands of a 115,000 square-foot commercial space. This requirement positions Johnson Controls to effectively meet the booming needs of data centers.
Moreover, the company is currently searching for a new CEO, a transition that Bank of America views as potentially positive. The expectation of this announcement prior to the end of the year, combined with the involvement of activist investors, may signal a shift towards a more robust strategic direction.
For investors seeking an appealing investment option within the flourishing AI landscape, Johnson Controls offers a margin of safety compared to many high-flying AI stocks. Currently, its forward price-to-earnings ratio stands at 18 times, notably less than the S&P 500’s average of approximately 21 times. If Johnson Controls were to be valued in line with its peers in the HVAC industry, it could see a valuation increase of up to 57%.
This year, shares of Johnson Controls have surged, reflecting the market’s growing awareness of its significant exposure to the AI data center sector, with an impressive 22% increase in value year-to-date. As the demands for AI capabilities continue to rise, Johnson Controls is positioned as a wise investment choice for those looking to harness the AI boom securely.
In conclusion, investing in Johnson Controls offers both a strategic advantage and a safety net in the rapidly expanding AI market. Its strong data center revenue and promising potential for leadership change make it an asset worth considering for financially savvy investors aiming to capitalize on the next wave of technological advancement.