Bernstein: No short-term "existential crisis" for data center chillers; still bullish on Trane Technologies plc (TT.US) and Johnson Controls International plc (JCI.US)

Bernstein's latest data center chiller industry survey report shows that market concerns are rising over whether next-generation AI data center architectures will still require chillers, but based on interviews with procurement heads from 5 hyperscale cloud providers, neoclouds, and OEMs, the firm believes chiller demand remains strong and supply continues to be tight, with no short-term "existential crisis" of being displaced. Bernstein maintains an "Outperform" rating on Trane Technologies plc (TT.US) with a price target of US$555, maintains an "Outperform" rating on Johnson Controls International plc (JCI.US) with a price target of US$194, and assigns a "Market Perform" rating on Carrier (CARR.US) with a price target of US$63. Strong demand, tight supply: lead times of up to approximately 12 to 18 months Experts noted that chiller lead times run as long as approximately 12 to 18 months and have generally lengthened over the past approximately 1 to 1.5 years. The bottleneck lies not only in OEM production capacity but also in key subcomponents such as fans, compressors, and controls, as well as customization and engineering requirements. Some relief may emerge as OEMs expand production and subcomponent procurement constraints ease, but near-term supply remains tight. Johnson Controls International plc scores highest among large chiller/HVAC OEMs In Bernstein's expert scorecard, Johnson Controls International plc ranks highest overall, with Carrier and Trane close behind. Johnson Controls International plc received particularly positive feedback on product/service capabilities, including its extensive field service network. Carrier also performed well on service capabilities, but feedback on functionality/delivery was more mixed. Trane's product functionality/quality remained solid, but experts rated its cost/delivery lower, with one expert citing supplier purchase order delays/internal coordination issues (related to Stellar's chiller manufacturing division). Daikin of Japan is generally regarded as cost-competitive with solid functionality/quality, but delivery feedback was mixed. Service matters, but is not an OEM moat OEMs remain the first choice for in-warranty/mission-critical work, but most experts are willing to use third-party service providers after the warranty period, citing greater bandwidth, faster response, stronger geographic proximity, and sometimes lower cost. One expert believes third-party service providers are better able to meet strict response time requirements (some hyperscale cloud providers require approximately 4 hours). This echoes Bernstein's prior mapping of the chiller OEM service landscape: Johnson Controls International plc has the largest North American commercial service network with 270 locations, Trane with 143, and Carrier with 88, though all three cover the vast majority of existing data center capacity (more than approximately 80% within a 30-mile radius). Chillers will not disappear in the short term, but marginal demand may decline Experts unanimously noted that, constrained by factors such as climate, workload mix, and reliability/redundancy requirements, chillers cannot be fully replaced in the short term. Dry coolers perform poorly in hotter climates (such as Phoenix and Dallas), not all workloads use liquid cooling, and mechanical refrigeration remains relevant for broader facilities and electrical equipment. As a result, the operators interviewed continue to budget for chillers in future designs within multi-year roadmaps.