AI boom driving earnings growth for Europe’s biggest industrial companies

“The AI gold rush is nothing that I have seen in the last 20 years in the data center industry,” Pankaj Sharma, executive vice president of the secure power division at Schneider Electric, said in an interview. The division provides both the hardware and supporting software for data centers.

Chips used for AI consume much more power than other applications and are packed closer together in high-density servers, meaning the heat they generate has become much harder to dissipate. Companies like Schneider Electric and Siemens provide the equipment and technology to keep them from overheating.

“The growing footprint of AI workloads could spark a multi-year wave of investments in data-center and server-cooling technologies, which would bode well for Vertiv, Schneider and others that offer these technologies,” wrote Bloomberg Intelligence analyst Mustafa Okur earlier this year.

Schneider has 17% revenue exposure to data centers, with cooling technologies a key part of its offering. Liquid cooling in particular – where a coolant passes through a pipe that is physically adjacent to the server – can lower temperatures in high-density data centers more effectively than simple air cooling. 

“From an opportunity standpoint, the need for deployment is dramatically higher than what it has ever been in any previous cycles, like e-commerce, Bitcoin mining, or the metaverse,” Schneider Electric’s Sharma added.

Siemens is benefiting from orders for its low- and medium-voltage electrification infrastructure, as well as technology around cooling systems, like temperature sensors and flow meters. 

“Right now, more of our pipeline of opportunity is AI related than is traditionally related,” said Ciaran Flanagan, Siemens’ global head of data center solutions. 

The excitement around AI has waned recently as investors started to wonder when investments will start paying off, but Siemens’ Chief Executive Officer Roland Busch still sees growth ahead. 

“The amount of data is growing, the amount of number crunching is growing. So therefore, our projection is that the electrification market, it’s really on a super cycle,” he said on the company’s most recent earnings call. 

For Siemens, which has seen some weakness in its automation business, electrification exposure is essential. And Bloomberg Intelligence analysts Omid Vaziri and Bhawin Thakker said companies with strong sales alignment to grid, data centers, AI “may continue convincing investors about opportunities to outperform cautious 2024-25 expectations.”

Yet, demand for power still outstrips its supply, and planning permission delays are holding back data center development. Until those bottlenecks are addressed, the earnings potential from building AI infrastructure will still face limits. 

“The market thesis for those companies is well understood, but the big debate is, how long does this go on for?” asked Citi analyst Martin Wilkie. 

First Published: Aug 20 2024 | 11:37 PM IST