nVent Electric’s expansion fueled by exploding need for data storage

The growth of data centers — likely to accelerate even more with the quick adoption of AI — is not only a boost to utilities providing power to these energy-eaters but also to manufacturers like nVent Electric.

nVent, which is based in London but run from St. Louis Park, makes liquid-cooled cabinet enclosures that protect the ultra-fast and ultra-hot-running chips that keep the data centers humming.

Since spinning off from Pentair in 2018, the company has pursued a strategy to benefit from the electrification of everything, which includes the data centers that support the cloud storage of companies from Amazon, Meta and Google to the data processing of banks and insurers.

nVent produces products largely unseen to the public, products that fuel the modern infrastructure that ensure everyday lives run uninterrupted. These include the enclosures that protect all sorts of electrical equipment from dust, debris, water and temperature extremes.

“You cannot build any electrical infrastructure without grounding, bonding, power connections, enclosures, ” CEO Beth Wozniak told investors at William Blair’s annual growth stock conference in June. “And we benefit from all of these trends.”

The growth in the enclosures market has led to revenue growth and steady earnings, with the prediction of more substantial gains in coming quarters.

It also has led to expansion of the company’s manufacturing space at its site in Anoka into what was a distribution area. That, in turn, led to nVent building a new 248,000-square-foot distribution facility in Dayton that opened earlier this year.

“It used to be a pretty sleepy company, and [Wozniak] has done a really nice job of reinvigorate growth there, and it’s really exciting to see that business just take off like it has this past year,” said Pete Johnson, a portfolio manager at St. Paul-based investment advisory firm Mairs & Power, which has been a longtime holder of nVent shares.

Since the spinoff nVent has reinvigorated its research and development arm to create new products, including over 50 new products this year. Johnson also credits Wozniak’s disciplined approach to mergers and acquisitions.

Johnson believes the growth of AI will be a “huge growth driver for the company going forward.”

The Anoka factory expansion will mainly accommodate increased orders for nVent’s Hoffman CDU800 RackChiller units, the cooling units for computer centers. The company also makes customized units for cloud computing service providers and other customers.

The demand for this new generation of cooling units is growing about three times faster than nVent’s legacy air cooling equipment.

Deane Dray, an analyst with RBC Capital Markets, estimates nVent’s liquid cooling business is growing at a compound annual growth rate of about 40%.

“Given the increased thermal demands from AI processing, growth in liquid cooling is now expected to advance from 5% of data center cooling today to 25% by 2028,” Dray wrote in May research note.

With concern over data centers’ oversized consumption of energy, nVent’s liquid-cooled enclosures results in individual computer units using less electricity than other enclosures, the company said.

nVent has also worked to focus more of the company on the electrification products portfolio.

nVent since 2020 has made six acquisitions, the largest an April 2023 $1.1 billion deal for ECM Industries, a New Berlin, Wisc.-based maker of electrical connectivity products. The most recent was in June, when nVent said it would pay $695 million for Trachte, a Madison, Wisc.-based maker of custom-engineered control building solutions designed to protect critical infrastructure that will become part of the enclosures segment.

It also has shed businesses that don’t fit into the core focus. Last week, nVent announced an agreement to sell its thermal management business including the Raychem and Tracer brands for $1.7 billion to funds managed by Brookfield Asset Management.

“We believe the announced sale of the thermal management business will make us a more focused and higher growth company,” Wozniak told analysts on its second quarter earnings call this week.

The thermal management business has had a shrinking share of nVent’s overall revenue as the enclosures business has grown.

“I love seeing the divestiture of thermal. That’s exactly the kind of simplification initiative that we were looking for,” Dray said during a discussion with executives during nVent’s earnings call.

The company on Tuesday reported second quarter results that included a net profit of $110 million, or 66 cents a share, down 1% from the same period a year ago. Revenue of $880 million grew 10% from the second quarter.

The close of the Trachte acquisition and the second quarter’s 10% sales growth led nVent to raise its sales guidance for the remainder of the year. nVent now expects 2024 revenue to increase 11% to 13%, or $3.6 to $3.7 billion, which is higher than analysts’ current expectations.

Second quarter revenue missed analyst expectations mainly due to timing of customer orders, but analysts said they remain bullish on the company.

“We believe the company’s exposure to tailwinds associated with ongoing electrification across a range of end markets, combined with a growing presence in the data center industry, provides visibility to sustained growth,” wrote Brian Drab, an industrials analyst for William Blair, in a research note Tuesday.