AI heat radiates through $10 bln cooling deal

nVent Electric

07/11/2025 13:00

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jeffrey Goldfarb

NEW YORK, Nov 6 (Reuters Breakingviews) - Artificial intelligence is generating more heat than light. Look no further than the companies preventing electricity-devouring chips and servers from melting under computational strain. Their torrid valuations, reflected in industrial conglomerate Eaton’s ETN.N nearly $10 billion deal to buy Boyd Thermal, expose even more investors to a nasty chill if the fever breaks.

Software sellers such as Microsoft MSFT.O and silicon specialists led by Nvidia NVDA.O have been the most obvious beneficiaries of a machine-learning boom sparked by the release of OpenAI’s ChatGPT three years ago. Data centers and power providers are also attracting heaps of money, boosting their varied suppliers further down the AI chain.

A Goldman Sachs investment arm, which bought Boyd in 2018, is capitalizing on the rising financial temperature. After one hyperscaler, the artful term for cloud service goliaths, began installing the company’s liquid cooling technologies, others followed. Boyd Thermal now projects about $1.7 billion of sales in 2026, up from $1 billion this year.

Such rapid growth helped persuade 114-year-old Eaton, a $150 billion manufacturer of circuit breakers, aerospace hydraulics and electric-vehicle chargers, to pay a scorching 22.5 times expected adjusted EBITDA for the business. That’s a premium to where AI kingpin Microsoft trades and almost on a par with Nvidia’s multiple. Even more incredibly, it's a small discount to rival Vertiv VRT.N.

There are reasons to give Paulo Ruiz, Eaton’s recently appointed CEO, some benefit of any doubt. With 70% growth, a 25% EBITDA margin and a mere 3% of revenue devoted to capital expenditure, Boyd Thermal probably produces a healthy return on investment and throws off abundant cash. The addressable market for liquid cooling, a tough one for new entrants to crack, is on track to swell to $28 billion in 2030 from $1 billion in 2023, Jefferies analysts said last year. Eaton’s performance is also impressive, generating a nearly 800% total shareholder return, including reinvested dividends, over the past decade, trouncing the S&P 500 Index .SPX.

The risk is that the fervor enveloping large language models suddenly dissipates. Before ChatGPT debuted, Vertiv and fellow peers nVent Electric NVT.N and Delta Electronics 2308.TW were valued at roughly half their current multiples. Even for an industry built on managing climates, it isn't fully insulated from a frigid investment blast.

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CONTEXT NEWS

Eaton, which makes equipment to help businesses manage their power usage, said on November 3 that it would buy Boyd’s thermal business for $9.5 billion to beef up its data center division.

Boyd is owned by Goldman Sachs Asset Management, and Boyd Thermal designs, manufactures, installs and services liquid cooling systems. It forecast $1.7 billion of sales for 2026, $1.5 billion of which is in liquid cooling. Eaton is paying 22.5 times Boyd Thermal’s estimated adjusted EBITDA for 2026.

Cooler heads prevail: valuations heat up for thermal managers https://www.reuters.com/graphics/BRV-BRV/zdvxjomzevx/chart.png

Captain of industry: Eaton's 10-year total shareholder return shines https://www.reuters.com/graphics/BRV-BRV/zgpoymogqpd/chart.png

(Editing by Jonathan Guilford; Production by Pranav Kiran)

((For previous columns by the author, Reuters customers can click on GOLDFARB/jeffrey.goldfarb@thomsonreuters.com))