Johnson Controls Is the Stock to Buy for Safe Exposure to AI Boom: BofA

• Financial institution of America upgraded Johnson Controls to ‘Purchase’ for its publicity to AI knowledge facilities.
• Johnson Controls is a prime supplier of thermal cooling tools and different knowledge middle 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 protected publicity to the AI growth, in response to a be aware this week from Bank 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 economic firm that sells every part from safety cameras to HVAC methods offs buyers publicity to “best-in-class knowledge middle property.”

“We discover that JCI is the second-largest supplier of thermal tools (~15% market share), with main market share in chillers. JCI additionally sells constructing automation methods, safety, and hearth safety tools 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 middle publicity its closest opponents have, together with Trane Technologies and Carrier.

One among Johnson Controls’ best-selling merchandise to datacenters is liquid-cooling methods, which assist distribute and offset the immense heat generated by AI-focused servers.

“One megawatt of energy equipped to an information middle requires roughly 285 tons of cooling, just 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, except for its knowledge middle 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 look at this as a optimistic catalyst. Mixed with activist investor involvement, we consider this doubtlessly indicators a brand new strategic route for the corporate,” Obin mentioned.

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

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

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

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