An AI Play Hiding in Plain Sight: A Look at Johnson Controls

Key Points

• The recent sale of its residential business allows the company to focus entirely on high-growth commercial markets like data centers.
• The company is developing and investing in next-generation liquid cooling technologies, which are essential for the operation of power-hungry AI servers.
• Under new leadership, a disciplined operational playbook is being implemented to accelerate growth and expand margins across the business.

The race to dominate artificial intelligence (AI) has sent investors flocking to semiconductor sector giants, but the true, long-term winners may not be the ones making the chips. The AI revolution is built on immense computational power that creates two critical and costly challenges: unprecedented energy consumption and a massive amount of heat.

Projections show that data centers could consume over 20% of the world's electricity by the end of the decade. For every kilowatt of power a server uses, a significant amount of additional power is needed just to cool the mission-critical parts inside the server.

This physical reality is creating a secondary boom in the essential infrastructure that makes data centers viable. This is the picks and shovels opportunity of the digital age, where foundational providers of cooling and building systems stand to benefit from durable, long-term demand. At the center of this trend is Johnson Controls NYSE: JCI, an industrial sector technology leader that has strategically positioned itself to solve the AI industry's biggest infrastructure headache.

A Deliberate Pivot to AI's Front Lines

Johnson Controls' focus on the data center market is not accidental; it is the result of a deliberate corporate transformation. The most significant move was the recent sale of its Residential and Light Commercial HVAC business to the Bosch Group. The all-cash transaction yielded approximately $5.0 billion in net proceeds, effectively completing the company's evolution into a pure-play provider of solutions for complex commercial buildings.

This strategic clarity immediately translated into a direct commitment to shareholder value. Management announced plans to deploy the proceeds into a substantial $5.0 billion accelerated share repurchase (ASR) program. This move is part of a larger, well-funded capital return strategy, with approximately $9.8 billion available under its total repurchase authorization as of June 30, 2025. Such decisive action is already being noticed by the market, with Johnson Controls’ stock delivering a year-to-date gain of over 36%.

Freed from its legacy consumer business, Johnson Controls has rapidly channeled its resources into technologies that solve the specific, high-stakes problems of data center operators.

• Advanced Liquid Cooling: The company launched its Silent-Aire Coolant Distribution Unit (CDU) platform, a system designed specifically for scalable liquid cooling capable of handling the intense heat loads of AI racks.
• Next-Generation Technology: JCI made a multi-million dollar strategic investment in Accelsius, a company specializing in two-phase, direct-to-chip cooling, giving it a crucial stake in the technology needed for the most powerful AI processors of tomorrow.
• Validated Efficiency: The company's flagship YORK YVAM chiller, recently named to Fortune's 2025 Change the World list, is a testament to its engineering prowess. The unit consumes 40% less power than conventional solutions and uses zero on-site water, a powerful selling point for data centers facing intense cost and environmental scrutiny.

Why the New CEO's Playbook Matters for Investors

A key catalyst behind this strategic pivot is the appointment of CEO Joakim Weidemanis. With a background in driving operational excellence at industrial giant Danaher NYSE: DHR, he is implementing a new business system focused on lean principles to enhance efficiency and accelerate growth. This is crucial for a company of Johnson Controls’ scale, where minor improvements can unlock significant value.

This is more than a high-level corporate initiative because it is already producing tangible results. One of the first targets is to cut manufacturing lead times in half for key data center products. For an industry where speed to market is everything, this operational improvement provides a significant competitive advantage, enabling Johnson Controls to meet the sector's explosive demand while simultaneously driving margin expansion.

Connecting Strategy to the Bottom Line

The company's strategy is already translating into strong financial performance. Johnson Controls reported a record backlog of $14.6 billion in its third quarter 2025 earnings report, a clear indicator of robust demand that provides excellent revenue visibility.

Recent results support this forward-looking strength. The company comfortably beat analyst estimates for its third-quarter earnings, posting an adjusted earnings-per-share (EPS) of $1.05. More importantly, management expressed its confidence by raising its full-year guidance for adjusted EPS to a range of $3.65-$3.68, representing a healthy 14-15% year-over-year increase. This growth potential is complemented by a reliable dividend, which was recently increased to 40 cents per quarter.

While AI chipmakers often trade at lofty valuations, Johnson Controls offers a more grounded entry point with a forward price-to-earnings ratio (P/E) under 30, reflecting its strong fundamentals as an industrial leader.

A Smarter Way to Invest in the AI Revolution

By strategically focusing its portfolio, leading with purpose-built technology, and executing under a new, disciplined leadership team, Johnson Controls has become a critical enabler of the AI revolution. The company's solutions address a non-negotiable, fundamental need that will only grow as computational demands increase. For investors seeking a durable, infrastructure-based stake in the long-term AI buildout without the volatility of the semiconductor space, Johnson Controls offers a compelling and intelligent opportunity.