Chris’ note: Coast to coast, a “heat dome” is hovering over the U.S. And it’s causing temperatures to soar.
Marathon Key, Florida, just notched its hottest five days on record – with an average afternoon high of 97.2 F. And in Death Valley, Arizona, nighttime temperatures now exceed 100 F.
And temperatures are set to get even hotter as the heatwave tightens its grip this weekend and into next week.
Nobody wants these sweltering summers. But there is a way to make the most of a terrible situation. As you’ll hear today from friend of Legacy Research, Brad Thomas, demand for air conditioning is about to explode.
And sweltering summers aren’t the only reason this industry is about to take off. Air conditioning is also needed to cool the data centers that ChatGPT and other artificial intelligence systems need to function.
Inspiration struck on a foggy train platform in 1902…
Willis Carrier was fresh out of Cornell University with a Master of Engineering degree.
And he was working on a thorny problem – how to control humidity in a printing press.
The moisture in the air was causing pages to come out blurry for the Sackett-Wilhelms Lithographic and Publishing Company.
And noticing the fog on the platform, Carrier suddenly got an idea about how to solve it…
When warm air passes over metals coils filled with refrigerant, it cools. This causes the water in the air to condense into tiny droplets – a kind of fog. This removes water vapor from the air, reducing its humidity.
So, he made the first air conditioner (“A/C”) by using a fan to blow air over tubes filled with cold water.
It solved the problem for the printing company. An unexpected side effect was that the lower humidity made the company’s workers feel more comfortable.
Soon, movie theaters were installing A/Cs to keep their customers comfortable. By the 1950s, advances in technology made them cheap enough to put in houses.
Even though A/C is now a common luxury, about 1 in 10 Americans still don’t own a unit. But with summer temperatures on the rise, they’re becoming more of a necessity.
That means more money for companies that sell A/Cs… and higher profits for investors.
Scary Announcement
Last week, the National Oceanic and Atmospheric Administration made a scary announcement.
It found that the global average temperature set a record high.
And climate researchers warn that more heat records will be broken in the coming months.
And this is part of a longer trend.
You can see it in the chart below. It’s of something called Cooling Degree Days (“CDD”).
CDDs track the demand for energy needed to cool a building. It’s the number of degrees a day’s average temperature is above the comfortable indoor temperature of 65 F.
Since the 1950s, the CDD gauge has gone up by more than 40%.
And as summers get hotter, and extreme heat events become more common, it is increasingly uncomfortable to live without A/C.
Record-breaking Heat
Take what’s happening in the Pacific Northwest.
In California, 72% of homes have A/C. In Washington State, only 53% of homes do.
That makes sense. Washington is usually cooler than California. That means less need for A/C.
But this summer, temperatures have broken records in Washington, too. In some places, they’ve soared past 90 F. That means demand will rise there and in other regions that typically don’t need as much A/C.
Or look at what’s happening in the South.
In Texas and Florida, 95% of homes have A/C. But because of business-friendly laws, and low taxes, these are two of the fastest-growing states.
As people move to there, they’ll buy A/Cs to keep cool in the sweltering summers.
Also, folks with older A/C units will upgrade.
The Inflation Reduction Act includes tax credits for energy-efficient A/Cs. This makes it more affordable for people to replace old units with new, more efficient ones. And with energy bills rising, that’s even more important.
And it’s not just homeowners demanding more A/C.
A/C for AI
Companies are building data centers to address the growing demand for cloud computing and artificial intelligence (“AI”).
And those data centers need to be cooled…
Data centers are warehouses containing thousands of server racks. These are powerful computers that do the processing for AI systems such as ChatGPT. These data centers house the “brains” of artificial intelligence systems.
Every time you type in a question, ChatGPT has to process it in a data center somewhere.
These servers convert electrical energy into heat as they run. They must be kept cool and dry. So, you need to remove this heat… and control humidity… just like you do for running a printing press.
A rough rule of thumb is that a data center needs the same amount of cooling capacity as its processing load. So, if a data center has a processing load of 1 megawatt (“MW”), it would also need around 1 MW of cooling capacity.
(To put that in perspective, a 1 MW generator would enough to keep 800 U.S. homes running at any given moment.)
And Tirias Research, a tech advisory firm, forecasts that 2028 data center power consumption will be close to 4,250 MW.
That’s a 212x jump over 2023.
That also means a 212x jump in cooling needs.
How to Play It
One A/C maker that will profit from the rising demand for A/C is Carrier Global Corporation (CARR).
It traces its history back to the company Willis Carrier started. But for many years, a company called United Technologies owned it.
But in 2020, United Technologies spun it off. Since then, CARR has increased its dividend every year. And it carries a yield of 1.5%.
Over the last 12 months, Carrier has returned 49% compared to 15% for the large cap S&P 500.
But I believe this stock is going even higher.
Nobody likes to see sweltering heatwaves. But they’re a reality. And the more temperatures rise, the more A/C demand will grow.
Mixed with the rise of AI, and the need to cool the massive data centers will need for all that compute, and demand for A/C will go into hyperdrive.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily
P.S. There’s a better way to profit from the increasing demand for A/C and the energy needed to power our rising needs.
I’ve been following it closely for years. And I released a presentation Wednesday to show you what I’ve uncovered. I also lift the lid on my No. 1 energy play for 2023 and beyond.
As energy demands continue to rise, there are some roadblocks ahead no one is accounting for. But by preparing now, you could own a part of the company solving this problem.
You can watch my presentation… and get access to my top energy play… right here.