Alpha Buying: Insiders Are Buying the Data Center Cooling Boom

The air conditioner has been humming along for years. You barely notice it until the day it stops, usually when the temperature outside makes opening a window a fairly useless suggestion. Suddenly, the HVAC contractor is the most important person in your life, and the question is whether a repair will get you through another season or whether it is time to replace the whole thing. That is a pretty good business to be in. America has an enormous stock of heating and cooling equipment that people depend on and that will eventually wear out. There is also a much bigger story developing around that replacement business. Buildings need better ventilation and lower energy bills. Data centers need to remove immense amounts of heat without interruption. The companies that can solve those problems have an opportunity to sell a great deal more than a basic air conditioner. I have been spending time on two of them: Madison Air Solutions (MAIR) and AAON (AAON). They approach the market from different directions, but each has a credible path to benefit from the changes underway. Recent insider purchases add another reason to keep them on our screen. The HVAC Market Is Waking Up The residential market is finally showing signs of life. Through July, manufacturers shipped 5.63 million central air conditioners and air-source heat pumps in the United States, an increase of 5.5% over the same period in 2025. July shipments rose 20.1%. The year-to-date total was still below the 5.76 million units shipped through July 2024, which leaves room for the market to improve further. These are shipments, of course, rather than a count of systems installed in people’s homes. They tell us equipment is moving again without telling us that every link in the chain is enjoying the same recovery. The strength of this business comes from all the equipment already in place. The Energy Information Administration found that 88% of U.S. households used air conditioning in its 2020 survey. Those systems need maintenance, and eventually they need replacing. A homeowner can stretch the life of an old unit for a while, but there comes a point when another expensive repair makes very little sense. At that point, the decision often expands to efficiency, humidity, and air quality. A better system can solve problems the old one never addressed. The recent transition to new refrigerants made that sales process more complicated than usual. Manufacturers built new equipment, distributors juggled inventory, and contractors learned how to install and service the new systems. Watsco, the large HVAC distributor, says the transition is largely complete. Its domestic residential equipment sales increased 5% in the second quarter, including 2% growth in units. Its gross margin declined, so there is still work to do before stronger demand shows up cleanly in profits. The federal tax credit for qualifying home heat pumps ended for equipment placed in service after 2025. That is a headwind for a customer considering a premium system. It doesn’t change the need to replace old equipment, and heat pumps will keep making sense in homes where the climate and operating costs favor them. I would rather own businesses that can prosper on the merits of their products than count on Washington to keep sending the customer a check. Data Centers Change the Equation Commercial HVAC is where the orders are more exciting today. Trane reported that America’s commercial bookings rose 50% in the second quarter. Carrier said its commercial HVAC orders increased about 65%. Building owners are putting money into air handling, cooling, and efficiency. Hospitals and schools need better systems. Factories want to control costs. Data centers cannot afford to get the cooling wrong. The servers run around the clock and generate a remarkable amount of heat. As computing equipment changes, cooling can involve carefully engineered air systems alongside liquid cooling, motors, and controls. The Energy Information Administration expects commercial electricity sales to rise 3.3% in 2026 and another 2.7% in 2027, with data centers and manufacturing among the sources of growth. Power connections and construction delays will shift individual orders, but a facility that opens will need cooling for its entire working life. That brings us to two companies positioned to benefit. Madison Air Solutions (MAIR): Building a Broader Air Technology Business Madison Air has put together an interesting collection of businesses for this environment. Broan-NuTone makes residential ventilation products. AprilAire deals with humidity and indoor air quality. Big Ass Fans moves air through large spaces. Nortek Air Solutions handles custom commercial applications, while Nortek Data Center Cooling addresses the need to keep computing facilities running. It is a broader business than many investors may realize from the name alone. The commercial segment’s organic sales rose 22.3% in the second quarter, led by air, liquid and hybrid cooling, custom air handling, and air movement. Residential organic sales fell 4.8%, even though reported residential sales grew with acquisitions. That difference matters. Madison Air already has commercial momentum. A recovery in its existing residential business would give it another source of growth without asking data centers to carry the entire company. Management is now making a large bet on the next stage. Madison Air agreed to buy ebm-papst, the German fan and motor company, for an enterprise price of $5.4 billion. Efficient fans and motors are integral to the performance of ventilation and cooling equipment, and they can be specified early in the design of a building or system. The acquisition would give Madison Air more technology to sell and more places to sell it. Management believes it can produce $160 million in annual cost savings by year three. I like the strategic fit. I will be happier when those savings are visible in the financial statements. Reading the MAIR Insider Buying Correctly The insider activity around Madison Air deserves a careful reading. Director Andrew La Force bought 20,000 shares on Aug. 25 at $27.84, spending $556,800. That is a substantial personal purchase. There were also several much larger commitments. An investment vehicle linked to Ernesto Bertarelli bought about $219 million of shares at $24.97. Chairman Larry Gies agreed to buy $300 million at the same price, and an affiliated entity agreed to buy another $320 million. Those numbers certainly get your attention. They do not all mean the same thing. The larger commitments were made as part of a $2.25 billion private placement designed to help pay for the ebm-papst acquisition. They involve newly issued shares at negotiated terms, with dilution for existing owners. I do not lump them together with La Force’s ordinary purchase and call the result a giant open-market buying spree. They do tell me that major holders are willing to put a meaningful amount of capital behind the deal. That distinction matters. Madison Air’s net leverage was 2.8 times at the end of June, before the proposed acquisition. Management expects leverage to be below four times at close and intends to reduce it afterward. The opportunity to own a broader air technology business is attractive. The pace at which Madison Air turns the acquisition into cash and pays down debt will determine how attractive it becomes for shareholders. AAON (AAON): The Data Center Cooling Play AAON has a more concentrated proposition. Its AAON brand makes configurable commercial heating and cooling equipment. BASX engineers specialized systems for data centers and other demanding facilities, including liquid cooling. Investors who still think of AAON chiefly as a rooftop equipment company may be missing what has happened inside the business. Second-quarter sales doubled to $627 million. BASX-branded sales increased 216.2% to $345 million, while AAON-branded sales rose 39.3% to $282.2 million. Liquid cooling sales in the Coil Products segment reached $126.6 million. The company ended the quarter with roughly $2 billion in backlog, almost twice its level a year earlier despite delivering much more equipment. That is a substantial amount of demand already on the books. AAON has expanded its manufacturing capacity, including at Memphis, to meet it. Management raised its full-year sales growth outlook to 55% to 60%. What I want to see next is the profit that comes from using those factories more efficiently. Gross margin fell to 24.3% from 26.6% a year earlier as the company absorbed ramp costs, outsourced components, and inflation. Operating cash flow improved to $55 million in the first half from a $31 million use of cash a year earlier, while $435 million was drawn on its revolving credit facility at the end of June. The backlog is impressive. Margins and cash flow will show us what it is worth. AAON Insiders Are Buying Too Two people close to AAON have bought shares while that expansion is underway. Executive Vice President Matthew Shaub bought 457 shares at $76.42 on Aug. 28, spending about $34,924. Director David Stewart bought 1,000 shares at $74.66 on Sept. 15, spending $74,660 through his IRAs. The combined $109,600 is modest next to AAON’s order book, but these were purchases made with their own money. A separate September filing by founder Norman Asbjornson reported a 100,000-share charitable gift. That should not be mistaken for a sale. This is why I pay attention to insider filings without letting a headline do my thinking. At Madison Air, I see one substantial director purchase and a group of major holders financing an ambitious acquisition. At AAON, I see two smaller personal purchases alongside exceptionally strong demand for equipment the company is already delivering. Both patterns are interesting. They mean different things. A Lot of Equipment Will Need Cooling The longer view is encouraging for the industry. Existing systems will wear out. Commercial property owners will keep looking for better performance and lower operating costs. Data centers will need reliable cooling well after the current construction wave. The Bureau of Labor Statistics expects employment of HVAC and refrigeration technicians to rise 11% between 2025 and 2035. There is a lot of equipment to install and a lot more to maintain. I am interested in owning businesses that can turn that work into durable cash earnings. Madison Air has a chance to become a more valuable collection of ventilation and cooling companies if it successfully integrates ebm-papst and reduces debt. AAON can make a great deal of money if its factories convert that $2 billion backlog at healthy margins. The share prices and trends will help decide when to act. For the moment, both have earned a close place on my Alpha Buying watchlist.