AAON Inc
Engineer-/configure-to-order capital-equipment manufacturer. Premium made-to-order HVAC sold through independent manufacturer's reps into non-residential end markets, plus custom data-center cooling (BASX) sold direct to hyperscalers/colocation operators. Revenue is project- and backlog-driven equipment sales (not subscription or aftermarket-led); margin is highly levered to factory utilization and product mix.
The thesis on this name
State of Data-Center Power
HVAC maker re-rating on its BASX datacenter-cooling unit. May 2026: raised FY2026 revenue-growth outlook to 40-45% on a record backlog; total backlog +107.4% YoY to $2.13B, BASX-branded sales +72.4% YoY to $228.6M in Q1-2026 (fact). The asymmetry is the speed of the mix shift — a name still partly valued as a commercial-rooftop-HVAC business while BASX rapidly turns it into a datacenter-cooling growth story. Smaller and more concentrated than nVent/Modine, so higher beta to the cooling theme — an undervalued high-potential expression, not a core compounder.
Earnings, margins, COGS & capex
AAON is a high-return HVAC manufacturer mid-transformation into a data-center-cooling supplier: BASX took FY2025 revenue up 20.1% to $1.44B and Q1-2026 up 54.3% to $496.9M, but the buildout has compressed gross margin from ~33-35% (FY2024) to 26.8% (FY2025) and 25.1% (Q1-2026) as the new Memphis plant absorbs under-utilized fixed costs and ERP/start-up costs. The signal is the $2.13B backlog (+107.4% YoY), of which BASX is $1.62B (+160%), giving multi-quarter revenue visibility. Management raised FY2026 guidance to 40-45% revenue growth with gross margin recovering to 27-28% as Memphis/Longview utilization climbs and delivers operating leverage.
Income statement — where each revenue dollar goes
% of revenueOf every $1 of revenue, ~75¢ is cost of goods and ~14¢ operating expense, leaving ~12¢ of operating profit (~8¢ net).
Revenue trend
Margins
down — compressed by Memphis ramp + ERP + mix; guided to recover to 27-28% FY2026
up modestly — SG&A leverage (13.7% of sales vs 15.9%) offsetting gross-margin drag
down vs FY2024 (~14%) on margin compression
down — capex outrunning OCF during expansion; should inflect as projects complete
COGS structure
COGS is dominated by raw materials — steel, aluminum, copper, and refrigerant (transitioning to A2L R-454B) — plus direct labor and, critically, factory overhead absorption. The recent margin story is less about input prices than under-absorbed fixed costs at the ramping Memphis and Longview data-center plants; as volume fills that capacity, fixed cost per unit falls and gross margin recovers. Section 232 steel/aluminum tariffs and R-454B refrigerant surcharges (Honeywell ~42%) are live industry-wide cost pressures, partly passed through via price. (fact/estimate)
Capex
$45.1M in Q1-2026 (~9% of sales); FY2026 D&A guided $95-100M implying continued heavy capex. Funds data-center capacity: the Memphis BASX plant, Longview TX liquid-cooling expansion, and Redmond OR — purpose-built for large hyperscale CDUs (2-6 MW units). This is the cash sink behind the FCF and net-debt swing, and the source of future operating leverage. (fact)
Latest earnings
Clear beat — revenue $496.9M vs ~$381-384M consensus (~+30% surprise); EPS $0.48 vs consensus in the ~$0.30-0.45 range (beat). (fact)
Raised FY2026: revenue growth 40-45% (up from prior), gross margin ~27-28%, SG&A 14-15% of sales, D&A $95-100M. (fact)
- Total backlog
- $2.13B (+107.4% YoY)
- BASX backlog
- $1.62B (+160% YoY)
- BASX-branded sales
- $228.6M (+72.4% YoY)
- Gross margin
- 25.1% (-170bps YoY)
Growth drivers
- BASX data-center cooling — sales +72.4% YoY to $228.6M in Q1-2026; backlog $1.62B (+160% YoY); the dominant driver (fact)
- Liquid cooling / large CDUs — FY2025 liquid-cooling sales +198.7% to $75.3M; targeting custom 2-6 MW hyperscale CDUs, not commodity 500kW units (fact)
- Capacity coming online — Memphis + Longview ramping to convert the record backlog into shipments and operating leverage (fact)
- Non-residential HVAC recovery — AAON Oklahoma rooftop/applied units +50.7% YoY in Q1-2026 as the core market firms (fact)
- Refrigerant transition (A2L/R-454B) — drives replacement demand for premium efficient units across the installed base (fact/estimate)
- Pricing — selective price increases passing through tariff and refrigerant cost inflation (fact/estimate)
Reported financials — SEC EDGAR
Audited GAAP figures pulled from SEC filings · latest filing 2026-03-02. The audited primary-source spine — not financial advice.
Revenue — annual (GAAP)
Margins & balance sheet — FY’25
Bull & bear
AAON is an early, premium, US-based supplier of customized hyperscale data-center cooling at the exact moment AI buildout is pulling that demand forward — a $1.62B BASX backlog (+160% YoY) and raised 40-45% FY2026 growth guide make the re-rating earnings-backed, not just hope, with margin recovery as the next leg.
- Backlog is the proof: total $2.13B (+107.4% YoY), BASX $1.62B (+160%) — hard, order-backed visibility into 2026/2027 shipments, not pipeline optimism (fact)
- Margin trough is identifiable and reversible — compression is Memphis under-absorption + ERP, not pricing erosion; guidance to 27-28% gross margin and operating leverage as utilization climbs (fact)
- BASX targets custom large CDUs (2-6 MW) for hyperscalers, avoiding the commoditized 500kW segment — a differentiated, higher-value niche (fact)
- Operating margin already expanded YoY (10.9%→11.5%) on SG&A leverage even with gross-margin drag — shows leverage potential once gross margin recovers (fact)
- Liquid-cooling sales +198.7% in FY2025 off a small base — earliest innings of the structural AI-thermal shift (fact)
You are paying ~57x forward earnings for a cyclical, project-equipment HVAC maker whose growth, margin recovery, and multiple all hinge on a single concentrated end-market (data-center capex) that could digest or air-pocket — against far larger, well-funded competitors — while it currently burns free cash and carries net debt.
- Valuation leaves no margin for error — ~92x trailing / ~57x fwd P/E for a hardware manufacturer; analyst targets (~$112-118) sit well below the ~$136 price (fact)
- Concentration risk — the BASX backlog is dominated by a small number of large data-center customers; a single cancellation/push-out materially dents the thesis (fact/estimate)
- Margins still falling, not yet recovered — gross margin 25.1% in Q1-2026 (down YoY); the 27-28% recovery is guidance, not realized (fact)
- Negative FCF (-$11.1M Q1-2026) and ~$425M net debt during the build — the model consumes cash and the leverage is execution-dependent (fact)
- Heavyweight competition for the same liquid-cooling dollars — Vertiv, Trane (LiquidStack), Schneider, Johnson Controls, Carrier, STULZ, Modine — with more scale and capital (fact)
- Cyclical history — FY2024 growth was only +2.8%; the core non-residential HVAC market can stall, and data-center capex is itself cyclical (fact)
What it is worth
Forward P/E and reverse-DCF sanity vs HVAC/data-center-cooling peers (VRT, TT, MOD, CARR, LII). AAON trades ~92x trailing / ~57x fwd P/E — a steep premium to traditional HVAC peers, closer to data-center-cooling pure-plays — so the multiple is underwritten by the BASX growth/backlog, not core HVAC.
~$80-95
a data-center capex air-pocket / customer push-out plus slower margin recovery de-rates a richly-priced cyclical hardware name.
~$112-120
analyst-consensus zone: strong 40-45% FY2026 growth delivered, margin recovers to guided 27-28%, but the premium multiple compresses toward growth-industrial norms.
~$150-170
if BASX backlog keeps compounding, gross margin recovers past 28%, and the AI-cooling TAM re-rates AAON toward pure-play multiples.
At ~$136 the price implies sustained ~40%+ revenue growth AND gross-margin recovery to ~28%+; analysts' average target sits ~$112-118, below the market price — the multiple is ahead of sell-side fundamentals and demands flawless execution.
SWOT
Strengths
- Premium, engineer-to-order positioning with a reputation for efficiency/quality that supports above-peer pricing and historically ~30%+ gross margins
- BASX gives a credible, fast-scaling foothold in the highest-growth thermal market (AI data-center / liquid cooling) — backlog $1.62B (+160% YoY)
- Record $2.13B total backlog (+107.4% YoY) provides multi-quarter revenue visibility rare for a project-equipment maker
- Vertically integrated US manufacturing footprint (Tulsa, Longview, Memphis, Redmond, Parkville) with controllable capacity additions
- Strong returns/balance-sheet history — capacity build is largely self-/debt-funded, not equity-dilutive
Weaknesses
- Gross margin compressed sharply (FY2024 ~33-35% → 25.1% Q1-2026) on Memphis under-absorption + ERP costs — execution-dependent recovery
- Negative free cash flow in Q1-2026 (-$11.1M) and a swing to ~$425M net debt as capex outruns operating cash
- Rising customer concentration as a few large data-center buyers dominate the BASX backlog
- Margin and lead-times exposed to raw-material (steel/aluminum/copper) and refrigerant (R-454B) cost spikes and tariffs
- Smaller scale than Carrier/Trane/Johnson Controls/Lennox — less purchasing power and channel breadth
Opportunities
- Multi-year AI/hyperscale data-center cooling buildout — large addressable CDU/liquid-cooling TAM where BASX is an early, customized supplier
- Operating leverage as Memphis/Longview utilization rises — guided gross-margin recovery to 27-28% and beyond
- Refrigerant transition (A2L) accelerating replacement of the aging non-residential HVAC installed base
- Cross-sell BASX cleanroom/healthcare and broader applied/chiller lines into adjacent verticals
- Reshoring / US manufacturing tailwinds favoring a domestic, made-to-order supplier
Threats
- A data-center capex air-pocket or hyperscaler digestion would hit the BASX backlog hard given concentration
- Well-capitalized competitors (Vertiv, Trane/LiquidStack, Schneider, Johnson Controls, Carrier, STULZ, Modine) targeting the same liquid-cooling dollars
- Tariffs (Section 232) and R-454B refrigerant shortages/surcharges pressuring input costs
- Premium valuation (~92x trailing / ~57x fwd P/E) leaves little room for an execution miss
- Pending HVAC industry price-fixing class action (AAON named alongside Trane/Carrier/Daikin/Lennox/Rheem; denied) — litigation/headline risk
Moats, dependencies & bottlenecks
Moats
decades-built reputation for efficiency and made-to-order quality supports pricing power Historically delivered ~30%+ gross margins, well above commodity HVAC; sticky with spec'ing engineers and reps.
ability to deliver customized large-capacity (2-6 MW) cooling at hyperscale spec is hard to stand up quickly Differentiates from commodity 500kW CDU vendors; co-engineering with hyperscalers creates switching friction.
purpose-built Memphis/Longview capacity is a real barrier today, but capital-replicable by larger rivals Lead-time and domestic-supply advantage during the AI scramble; the moat is timing/capacity, not patent.
entrenched rep relationships in non-res HVAC, but standard for the industry Channel depth for the core HVAC business; less relevant to direct hyperscale BASX sales.
$2.13B backlog locks near-term revenue but is order-by-order, not a structural lock-in Provides visibility, not permanence — can be cancelled/pushed in a downturn.
Dependencies
BASX (~$1.62B backlog) rides AI/hyperscale capex; a capex digestion or air-pocket is the single biggest swing factor.
Concentration in the BASX backlog — loss/reduction of a major customer would materially hit results (10-K risk factor).
Direct COGS input; Section 232 tariffs and metal price spikes (aluminum up early 2026) pressure margin and are partly passed through.
A2L mandate drives replacement demand (tailwind) but R-454B shortages/surcharges (Honeywell ~42%) raise cost and complicate production.
Margin recovery depends on hiring/training and lifting Memphis/Longview utilization; ramp execution is the core operational risk.
Advantages
- Early, credible US supplier of customized large-capacity (2-6 MW) hyperscale cooling — ahead of many traditional HVAC peers on the data-center pivot
- Record order visibility — $2.13B backlog (+107.4% YoY) underwrites the 40-45% FY2026 growth guide
- Premium pricing power from brand/engineering reputation (historically ~30%+ gross margins)
- Vertically integrated, controllable domestic capacity — a lead-time/reshoring edge during the AI scramble
- Demonstrated operating-margin leverage (SG&A 15.9%→13.7% of sales YoY) even before gross-margin recovery
Weaknesses
- Gross margin still compressed (25.1% Q1-2026, down from ~33-35% in FY2024) — recovery is guidance, not realized
- Negative free cash flow (-$11.1M Q1-2026) and a swing to ~$425M net debt during the capacity build
- High and rising customer concentration in the BASX data-center backlog
- Subscale versus Carrier/Trane/Johnson Controls/Lennox/Vertiv — less purchasing power, capital, and channel breadth
- Premium valuation (~57x fwd P/E) prices in flawless execution and leaves little downside cushion
- Cyclical exposure on both ends — core non-residential construction and data-center capex
Bottlenecks
- Factory utilization / fixed-cost absorption at the new Memphis and Longview plants — the live gate on gross-margin recovery (25.1% today vs guided 27-28%)
- Skilled-labor hiring and training to staff the ramped data-center capacity
- Capital intensity — ~$45M/quarter capex and ~$95-100M FY2026 D&A constrain free cash flow during the build
- Lead-times and availability of metals/refrigerant inputs amid tariffs and R-454B shortages
- Engineering/throughput capacity to deliver highly customized large CDUs at hyperscale volume without slipping schedules
Top signals & trends
Top signals
$1.62B (+160% YoY, +24.4% QoQ); continued growth confirms durable AI-cooling demand — flattening would be the first warning.
25.1% in Q1-2026; sequential improvement as Memphis utilization rises is the key proof the margin trough is behind.
FCF was -$11.1M in Q1-2026; watch for capex peaking and OCF turning FCF positive as projects complete.
Any major data-center customer push-out or cancellation would expose the concentration risk and hit the backlog narrative.
~$136 price vs ~$112-118 average analyst targets — the multiple is ahead of sell-side fundamentals; rich entry point.
AAON's demand is a derivative of hyperscaler capex; their guides are a leading indicator for BASX orders.
Trends
Structural multi-year tailwind; the core re-rating driver — liquid-cooling sales +198.7% FY2025, BASX backlog +160% YoY.
Rising rack power densities favor AAON's custom 2-6 MW CDU focus over commodity air-cooling.
Drives replacement demand for efficient units (positive) but supply shortages/surcharges raise input cost (negative).
Raises metal COGS industry-wide; partly offset by price increases but pressures margin and lead-times.
Favors AAON's vertically integrated US footprint for both core HVAC and data-center cooling.
Core HVAC end-market is cyclical; AAON Oklahoma +50.7% in Q1-2026 suggests a firming, but rates/construction softness is a swing factor.
Ecosystem & competitor graph
Suppliers feed the company; customers pull from it. Line thickness shows the strength of each tie (supply-chain dependency, customer earnings contribution). Hover to isolate a tie.
Nucor, Steel Dynamics) Primary raw-material inputs to cabinets, coils, and structures; cost exposed to Section 232 tariffs.
Refrigerant supplier (R-454B / Solstice A2L); announced ~42% surcharge — a direct COGS input and cost-pressure source.
Refrigerant (Opteon / A2L) supplier for the industry's transition to low-GWP refrigerants.
Key component supplier — scroll/screw compressors for AAON's units (former Emerson Climate; now standalone).
Regal Rexnord, ABB) Motors, drives, fans, and controls embedded in HVAC/CDU equipment.
Hyperscaler whose AI data-center capex is an end-market driver for BASX liquid-cooling/CDU demand (derivative exposure).
Hyperscaler buildout drives data-center cooling demand AAON/BASX serves directly or via integrators.
Hyperscale data-center operator; AI capex is a leading indicator for BASX orders.
Large AI/data-center capex spender feeding the liquid-cooling demand pool.
Mechanical contractors and integrators that install/spec AAON HVAC and route data-center cooling projects.
Non-residential building owners / REITs (offices, schools, healthcare) Core HVAC end customers via the independent manufacturer's-rep channel.
The pure-play data-center thermal/power leader and AAON's most direct BASX competitor in liquid cooling and CDUs; far larger and better-capitalized.
Major chiller/HVAC scale player; acquired LiquidStack and Stellar Energy to push into data-center liquid cooling — directly contests BASX dollars.
Thermal-management specialist with a fast-growing data-center cooling segment; a close-size, direct competitor re-rated on the same AI theme.
Global HVAC/building-systems giant with data-center cooling offerings; scale and channel advantage in both core HVAC and DC.
~$22B HVAC leader competing across commercial HVAC and increasingly data-center cooling; scale and purchasing power.
Commercial/applied HVAC competitor on AAON's core rooftop/applied turf; price/standardized-equipment pressure.