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AAON: The AI Gold Rush Drives Revenue Growth

Clyde MorganSunday, May 11, 2025 11:59 am ET

27min read

The rapid adoption of artificial intelligence (AI) and high-performance computing (HPC) has ignited a surge in demand for advanced data center infrastructure—and AAON Inc. (NASDAQ: AAON) is positioned at the forefront of this transformation. The company’s Q1 2025 results underscore its dominance in the data center cooling market, with revenue growth and strategic investments signaling a multiyear growth cycle fueled by AI-driven infrastructure expansion.

The AI-Data Center Nexus: Why Cooling Matters

AI workloads generate unprecedented heat densities, requiring cutting-edge thermal management systems to ensure reliability and efficiency. AAON’s BASX-branded liquid cooling solutions—critical for hyperscale data centers—are now central to this demand. In Q1 2025, BASX revenue surged 374.8% year-over-year to $132.6 million, accounting for over 40% of AAON’s total sales. This growth is underpinned by a record $623 million backlog for BASX equipment, up 83.9% from 2024, reflecting strong demand for cooling systems tailored to AI infrastructure.

Strategic Expansion: Memphis Facility and Production Capacity

AAON’s $220 million 2025 capital expenditure plan is designed to meet this soaring demand. The crown jewel of this strategy is the 787,000-square-foot Memphis facility, which began limited production in early 2025 and will eventually employ 828 workers. This site specializes in manufacturing liquid cooling distribution units (CDUs), air-cooled systems, and modular HVAC solutions, directly addressing the data center sector’s needs. Combined with upgrades at its Longview, Texas, and Redmond, Oregon, facilities, AAON aims to achieve “mid- to high-teens revenue growth” in 2025, driven by its expanded capacity.

Margin Pressures and Path to Recovery

While AAON’s top-line growth is impressive, gross margins dipped to 26.8% in Q1 2025 due to supply chain bottlenecks, particularly shortages of R454B refrigerants. However, sequential improvements (up 75 basis points from Q4 2024) suggest these issues are easing. Management expects operational efficiencies at BASX and the Coil Products segment to drive margin recovery as production scales. The $1.03 billion total backlog—up 83.9% year-over-year—provides clear visibility into future revenue, even as near-term margin challenges persist.

Financial Fortitude and Shareholder Returns

AAON’s balance sheet remains robust, with $56.7 million in adjusted EBITDA in Q1 2025 and ample liquidity to fund growth. The company bolstered shareholder confidence by raising its dividend by 25% (to $0.10 per quarter) and repurchasing $30 million of its stock in Q1 alone. This reflects management’s conviction in the long-term demand for data center cooling solutions.

Risks and Considerations

Despite its strong fundamentals, AAON faces risks, including:
1. Supply Chain Volatility: While R454B shortages have eased, raw material costs and logistics disruptions could resurface.
2. Economic Uncertainty: A slowdown in data center spending—if macroeconomic conditions deteriorate—could dampen demand.
3. Competitive Landscape: Rival HVAC players may ramp up liquid cooling offerings, intensifying competition.

Conclusion: AAON as a Long-Term Play on AI Infrastructure

AAON’s Q1 results and strategic initiatives paint a compelling picture of a company capitalizing on secular trends in AI and data center expansion. With a $1.03 billion backlog (83.9% higher than 2024), a $174.5 million liquid cooling order pipeline, and a manufacturing footprint designed for scalability, AAON is well-positioned to sustain growth.

While near-term margin pressures and macro risks linger, the data center cooling market’s long-term trajectory is undeniable. As AI adoption accelerates, hyperscalers and enterprises will increasingly rely on advanced thermal management systems—AAON’s core competency. With a 374.8% surge in BASX revenue and a 18.4% sequential backlog expansion, the company is already proving its ability to deliver on this opportunity.

Investors seeking exposure to the AI-driven data center boom should view AAON as a key beneficiary. Its Q1 performance and strategic investments suggest it is not just capitalizing on today’s demand but building the infrastructure to dominate tomorrow’s market.

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