The 30 second version
- AAON makes commercial HVAC and, through its BASX brand, custom cooling systems for AI data centers
- Q2 2026 revenue doubled year over year to $627M; operating income rose 192%; EPS beat consensus by 35%
- Backlog stands at $1.97B, up 98% from a year ago, with BASX backlog alone up 185%
- Catalyst: Q3 2026 earnings on November 5, the first print where the Memphis facility ramp should begin lifting margins
- Main risk: margin recovery takes longer than management expects; market cap at ~$6.2B sits above our usual $5B ceiling
AAON reported revenue growth of 101.2% in Q2 2026. The stock fell 5.9% on the day. That is the whole setup.
The company beat both revenue and earnings estimates by a wide margin. Revenue came in at $627 million against a consensus of roughly $492 million. Diluted EPS of $0.69 beat consensus of $0.51 by 35%. Management raised full year sales growth guidance to 55 to 60%, nearly triple what they were guiding at the start of the year. And yet the stock, today, sits near its 52-week low of $73, having traded as high as $150 last year. The market has decided the margin story is the story. We think it has the timing wrong.
What just happened
The Q2 print on August 10, 2026 was the fourth consecutive quarterly revenue record. Total net sales reached $627 million, with operating income climbing 192% year over year, and SG&A falling to 13.3% of sales as fixed costs were absorbed across a larger revenue base. The earnings call was blunt about the margin situation: the new Memphis manufacturing facility is still in ramp, and outsourcing used to meet demand during the ramp carries lower margins than in house production. These are known costs, not structural ones.
The BASX brand, which makes custom liquid and air side cooling solutions for hyperscale data centers, tripled its revenue year over year in Q2. Its own gross margin printed at 30.0%, expanding during the quarter. The drag is coming from the Oklahoma segment, where Memphis overhead of roughly $9.8 million per quarter inflated costs. Exclude Memphis and Oklahoma segment margins are running near 29.6%. The facility is performing ahead of plan, and once it reaches full utilization, those overhead costs stop being unabsorbed.
The business
AAON makes semi custom and custom HVAC equipment, primarily for commercial buildings. It sells direct to contractors through a network of manufacturer representatives, a channel model that most large HVAC manufacturers avoid because it requires more engineering involvement per order. That is precisely the point. The complexity of the product creates customer stickiness, and the direct model protects margin from distributor markups.
The BASX division is the part the market has not fully priced. BASX was acquired in 2021 and builds cooling systems specifically for high density computing environments, including liquid cooling systems for GPU clusters. BASX backlog reached $1.43 billion at June 30, up 185% year over year. Most of those orders are tied to data center liquid cooling, not air side, which tells you customers are designing for the next generation of AI compute density, not last year’s. The detail that matters, buried in the 10-Q: BASX’s book to bill ratio over the trailing twelve months ran at approximately 2x, meaning the company is taking in orders twice as fast as it can ship them.
The numbers
First half 2026 net sales reached $1.12 billion, up from $634 million in the same period a year earlier. Operating cash flow for the first half improved to positive $55 million versus a use of $31 million in the prior year period. The balance sheet carries $435 million of revolver borrowings against a $600 million facility, with a leverage ratio of 1.46 times. No equity has been issued. A $100 million buyback was authorized in early 2026, though none has been executed on the open market yet, preserving flexibility.
Analyst coverage is light for a company this size: seven analysts, with a median price target of $118 and a range of $100 to $125. Against a stock price near $75, that range implies 33 to 67% upside from the current price even from the most conservative analyst on the list. The full year 2026 EPS consensus sits around $2.26, which at $75 per share represents roughly 33 times forward earnings. That looks stretched until you factor in what the guidance actually implies. Management is guiding 55 to 60% revenue growth and improving margins through the second half as Memphis normalizes, which puts the earnings power well above what a stale consensus captures. Post Q2 estimate revisions were downward on EPS, as analysts penalized margin compression, while revenue estimates were not marked up sufficiently to match guidance. That gap is where we are looking.
Why the market has not caught up
Coverage is thin, the stock is classified as a “construction” company on most platforms, and the institutional shareholder base at roughly 70% is already fairly well owned. The analysts who cover it are primarily industrial names, not the AI infrastructure desks. When revenue doubled, the price fell, because the readers of that release were industrial analysts scanning the gross margin line and seeing compression. The AI infrastructure community, which would look at a 2x book to bill on liquid cooling and see a supply constrained winner, is not following this ticker. That is a mismatch.
The stock has lost nearly half its value from its 52-week high while the underlying business has accelerated dramatically. The Q2 revenue beat of $136 million against consensus is not a rounding error. It is evidence that the backlog conversion machine is working, and that production capacity is scaling faster than the model priced in. One EVP purchased shares on August 31, three weeks after the post earnings drop. That is a small signal, but it is the first insider buy in months.
What breaks it
The bear case is simple and not wrong: if the Memphis facility takes longer to absorb overhead costs, or if outsourcing does not wind down on schedule, the margin recovery that justifies the current multiple does not arrive in Q3 or Q4 and the stock has more room to fall. Data center capital spending from hyperscalers is the other lever. BASX backlog is enormous, but backlog is not revenue until it ships, and any pause in data center spending would slow the conversion rate. The market cap at roughly $6.2 billion also exceeds our typical ceiling of $5 billion, so position sizing discipline matters here.
What we are watching
- November 5, 2026: Q3 2026 earnings, the first quarter where Memphis overhead absorption should show sequential margin improvement; watch for gross margin recovery toward 26% or better
- October 2026: Any BASX order announcements or hyperscaler capex updates that confirm the demand pipeline has not softened
- September 4, 2026: Ex dividend date for the $0.10 quarterly dividend, a minor event but a confirmation that cash generation is stabilizing
Not financial advice.