The HVAC company hiding a semiconductor secret

In Tulsa, Oklahoma, a company best known for making commercial heating and cooling equipment is now one of the most interesting reads in the data center boom. AAON, Inc. (NASDAQ:AAON) just posted 42.5% revenue growth year-over-year. By most measures, that's a blowout number. Companies in the S&P 500 would kill for it. But here's the part that should make you stop and think: their earnings per share grew only 29% while revenue grew 42%, and operating margins have collapsed nearly five full percentage points from their five-year average.

That gap between revenue growth and profit growth is the whole story right now.

When a company works harder to generate each dollar of profit, one of a few things is happening. Either they're scaling faster than their cost structure can absorb — hiring, building, buying capacity ahead of demand. Or competition is forcing prices lower even as volumes rise. Or the new business they're chasing (in this case, hyper-scale data center cooling) comes with worse unit economics than their legacy commercial HVAC work. Probably some combination of all three.

The data center cooling angle is real and it's worth understanding. As Nvidia (NASDAQ:NVDA) GPUs and custom AI chips pack more compute into tighter spaces, the heat they generate has become a genuine engineering problem. Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), and Google (NASDAQ:GOOGL) are all building at a pace that requires purpose-built cooling infrastructure. AAON makes precision climate control systems suited exactly for that environment. When a hyperscaler breaks ground on a new campus, AAON is in the room.

So the revenue story is legitimate. The market is real. The demand is there.

The problem is valuation. AAON trades at 40.6 times forward earnings with a price-to-earnings-growth ratio of 2.54. That means the market is paying a premium for consistent, high-quality execution — and over the last four quarters, AAON has delivered a 54% earnings beat, then a 35% miss, then a 13% beat, then a 15% miss. That pattern is not the earnings profile of a company in control of its own operations.

The bear case is simple: margins keep compressing, the market re-rates at a lower multiple, and the stock gives back a chunk of its data center premium. At 40x earnings, there's no margin of safety if the growth story stutters.

The bull case is equally simple: this is a capacity-building phase, the cost overruns are temporary, and in 18 months AAON prints the margin recovery quarter that makes today's price look like a gift.

Both scenarios are plausible. What isn't plausible is paying 40x earnings for a company that can't predict its own quarterly results within 30%. The next 12 months will tell you which version of AAON you actually bought. Until margins start moving in the right direction, the story is a watch, not a buy.