Daily Disruptor: $AAON, the factory caught up, now the orders have to

The 30 second version

• AAON builds custom HVAC equipment in Oklahoma, Texas and Tennessee, and its BASX brand of data centre cooling (liquid cooling units, air handlers, fan walls) is now more than half of sales.
• BASX is at Flight: the factory limit is easing, with BASX brand sales up 216% to $345M in the June quarter and total sales doubling to $627M.
• The worry is orders. Backlog slipped 7.4% to $1.97B, and by our arithmetic BASX booked about $156M of new work while shipping $345M.
• Next test: third quarter results, due in the first half of November. We want BASX backlog at or above $1.43B and gross margin back above 25%.
• What breaks it: a second thin quarter of BASX orders (BASX backlog below $1.25B) or gross margin below 23%.

The largest listed specialist in data centre power and cooling said yesterday that its organic orders more than doubled from a year earlier. Vertiv’s third quarter sales rose 61% to $4.3B, and it lifted its full year sales outlook by $650M.

That lands squarely on AAON. In its last report, AAON’s factories finally caught up with demand and shipments doubled, but its data centre backlog fell for the first time in this cycle. With the shares near $76, roughly half their high of the past year, the November report has to answer one narrow question: was June’s order gap timing, or the top?

What just happened

Three things, in order. First, the AI infrastructure trade broke in October. Data centre stocks were still under pressure on October 20 after a Korean cloud provider fell 30% on its market debut, and the selling hit companies that had just reported strong quarters. AAON drifted with the group to a close of about $70.80 on Monday.

Second, the stock bounced 7.1% on Tuesday to $75.83, before the Vertiv numbers were out. Third, those numbers: Vertiv’s Americas sales rose 75%, adjusted operating margin reached 25.2%, and the company raised guidance across every line it gives.

Vertiv sells to the same hyperscale and colocation builders that buy from BASX. If those buyers doubled their orders with the largest supplier in the September quarter, a quiet BASX order book becomes harder to explain as a market slowdown. It becomes either timing on a handful of large awards or share going elsewhere. The November report separates the two.

The business

AAON has two brands. The AAON brand sells semi custom rooftop units and air handling equipment for schools, offices, shops and factories, mostly through independent sales reps. It grew 39.3% to $282.2M in the June quarter while the commercial HVAC market stayed soft.

BASX is the data centre business, and it is split across two reporting segments in a way that hides the liquid cooling story. The BASX segment, which builds custom air handlers and fan walls, sold $218.0M at a 30.0% gross margin. Liquid cooling units sit inside AAON Coil Products, where they made up $126.6M of the segment’s $146.7M in sales, up 208%. That segment earned only 16.0% gross margin, which the company put down to outsourcing, freight and contracts priced before costs rose.

Every BASX sale is a built to order project. The customer pays per unit or per project, and the costs that arrive with each one are steel, copper, motors, pumps, controls, labour and freight. Customers choose AAON over Vertiv, Trane or Schneider for engineering flexibility and, lately, for a delivery slot that matches a construction schedule. A data centre without its cooling cannot switch on its chips.

One detail from the segment tables shows how far the factory network has been rebuilt around this work. AAON Oklahoma, which also carries the new Memphis plant, sold $91.4M of product to the company’s other segments in the quarter, against $5.3M a year earlier. It also absorbed $18.1M of Memphis overhead. Strip that out and the segment’s gross margin was 31.2%, slightly better than a year ago.

Who keeps the benefit? Today, partly the customer, through fixed price contracts written before copper and component costs rose. Management says newer backlog carries better pricing. A cheaper, better AI model does not hurt AAON directly: cooling demand follows watts per rack, and more compute means more heat.

Where it sits on our curve

Our Disruption Map places data centre cooling at Flight, and BASX fits. The product works, customers have bought it repeatedly, and the question is how long and how profitably the expansion runs. That matters now because Flight carries specific risks (service cost, working capital, cash consumed by growth) and AAON is showing all three at once.

The binding constraint has been output. In 2025 the company more than doubled its production capacity for BASX equipment, and BASX brand sales climbed in four steps: $124.8M, $181.4M, $228.6M, then $345.0M. Management said in August that lead times were improving in key areas. For the buyer, the threshold is a delivery date that holds; for us, it is whether that output comes at a gross margin of 25% or better. On the evidence sequence BASX has reached expansion, with BASX backlog up 185% from a year earlier.

The strongest alternative is that 2026 is a catch up year after weak execution in 2024 and 2025, plus a burst of AI building that is already fading. The June quarter fits that reading uncomfortably well. The observation that tells the two apart is BASX orders against BASX shipments in the September quarter, read against Vertiv’s doubling.

The numbers

Sales over the last four quarters: $384.2M (up 17.4%), $424.2M (up 42.5%), $496.9M (up 54.3%) and $627.0M (up 101.2%). The turn is plain. Gross margin went the other way, from 27.8% to 25.9%, 25.1% and 24.3%, as Memphis came on and outsourced parts filled gaps.

The guidance path tells the same story. In March the company guided 2026 sales growth of 18% to 20% at gross margins of 29% to 31%. In May it was 40% to 45% at 27% to 28%. In August, 55% to 60% at 25% to 26%. Revenue up three times, margin down three times.

Backlog is where we did our own arithmetic. Total backlog moved from $1.32B to $1.83B, $2.13B, then $1.97B. Adding back each quarter’s sales gives implied new orders of roughly $709M, $933M, $798M and then $468M. For BASX alone, June quarter orders came to about $156M. The company blamed the timing of large awards, and contract liabilities, money customers pay ahead of delivery, fell from $80.7M at year end to $12.8M, which fits fewer fresh awards.

Cash has turned. First half operating cash flow was $55.0M against an outflow of $31.0M a year earlier, on net income of $96.5M. Capital spending of $97.3M still exceeded it, against a $190M plan for the year, so the revolver rose to $435.0M with $12.7M of cash. Diluted shares rose only 0.9% in a year. One more thing: the midpoint of guidance implies second half sales of about $1.15B, or about $575M a quarter, below June’s $627M.

What the price already requires

At about $76, AAON is worth roughly $6.3B on diluted shares and about $6.8B including net debt. At 15 times EBITDA, a plain industrial multiple and well below what the market paid for AI cooling a year ago, that needs about $450M of 2027 EBITDA. First half 2026 EBITDA was $170.6M, and we estimate around $370M for the full year at guidance.

Our three cases, all at 15 times. Downside: 2027 sales flat at $2.27B, gross margin 24%, EBITDA near $350M, about $57 a share. Central: sales of $2.6B, up about 15%, with gross margin recovering to 27%, EBITDA near $490M, about $83. Upside: $3.0B at 29%, EBITDA near $630M, about $108. Today’s price sits below our central case, which is the case it needs.

The gap is in the margin line. The market reads a consolidated gross margin guided down three times this year. Underneath, the BASX segment earned 30.0%, the AAON Oklahoma business earned 31.2% before Memphis, and Memphis overhead alone cost about 2.9 points of company gross margin in June. That is a startup cost of known size, and it shrinks as volume fills the plant. Getting back to 27% needs no price rise, only absorption. The price needs about $2.5B of 2027 sales at roughly 26.5% gross margin, which is close to where the business stood in mid 2025.

What breaks it

Written now, before the report: BASX backlog below $1.25B would mean a second quarter in which BASX orders covered less than half of BASX shipments. Against a market where Vertiv’s orders doubled, we would read that as lost share or a lost customer, and the thesis would be broken. Total backlog below $1.7B, gross margin below 23% or a 2026 growth outlook cut below 50% would each break it too.

The next most likely failure is slower: orders recover but margin does not, because liquid cooling keeps running at 16% while copper and outsourcing costs stay high. Financing is not the risk here. AAON funds itself at the operating line, has barely issued shares, and the capital spending gap sits on a revolver rather than with new holders. A revolver above $500M by year end would tell us working capital is eating the growth.

What we are watching

• First half of November 2026, third quarter results (date not yet confirmed; last year’s came on November 6). Strengthens: sales of $590M or more, gross margin of 25.5% or better, BASX backlog at or above $1.43B, 2026 outlook held or raised. Breaks: BASX backlog below $1.25B, total backlog below $1.7B, gross margin below 23%, or growth outlook below 50%.
• Same report, cash. Strengthens: positive third quarter operating cash flow with the revolver at or below $435M. Breaks: revolver above $500M.
• Early February 2027, Vertiv fourth quarter orders. A control for the market: if Vertiv’s orders keep growing while BASX orders lag again, the problem is AAON’s.
• Around early March 2027, fourth quarter results and the 2027 outlook. Strengthens: a gross margin guide of 27% or more with sales growth of 10% or better. Breaks: a gross margin guide below 25%.

Not financial advice.

References

1. AAON, Inc. AAON Reports Record Second Quarter 2026 Results Driven by Strong Demand, Accelerating Throughput, and Improved Operating Execution (Form 8-K, Exhibit 99.1). US Securities and Exchange Commission. Published August 10, 2026. Accessed October 28, 2026. https://www.sec.gov/Archives/edgar/data/0000824142/000082414226000052/liveaaonpressreleaseexs.htm
2. Vertiv Holdings Co. Vertiv Reports Strong Third Quarter 2026 with Net Sales Growth of 61%, Organic Orders Growth over 100% (Form 8-K, Exhibit 99.1). US Securities and Exchange Commission. Published October 28, 2026. Accessed October 28, 2026. https://www.sec.gov/Archives/edgar/data/0001674101/000162828026067707/q32026exhibit991vrt10282026.htm
3. CNBC. Data center stocks remain under pressure after Korea IPO plunges 30%. CNBC. Published October 20, 2026. Accessed October 28, 2026. https://www.cnbc.com/2026/10/20/data-center-stocks-slide-as-korea-ipo-plunges-30percent-pressuring-tech-sentiment.html
4. AOL. The AI sell off is crushing stocks of companies leading the data center build out. AOL. Published October 2026. Accessed October 28, 2026. https://www.aol.com/articles/ai-sell-off-crushing-stocks-175206000.html
5. Gotrade. AAON Inc (AAON) stock price, October 27 close (share price data only). Accessed October 28, 2026. https://www.heygotrade.com/en/us-stock/aaon/
6. AAON, Inc. AAON Reports Third Quarter 2025 Results (Form 8-K, Exhibit 99.1). US Securities and Exchange Commission. Published November 6, 2025. Accessed October 28, 2026. https://www.sec.gov/Archives/edgar/data/824142/000082414225000197/aaonq32025pressreleaseexs.htm
7. AAON, Inc. AAON Reports Fourth Quarter and Full Year 2025 Results, Carries Record Backlog into 2026 (Form 8-K, Exhibit 99.1). US Securities and Exchange Commission. Published March 2, 2026. Accessed October 28, 2026. https://www.sec.gov/Archives/edgar/data/824142/000082414226000003/liveaaonpressreleaseexs.htm
8. AAON, Inc. AAON Reports First Quarter 2026 Results with Record Sales and Backlog, Robust Earnings Growth, and Raises Full Year Guidance (Form 8-K, Exhibit 99.1). US Securities and Exchange Commission. Published May 7, 2026. Accessed October 28, 2026. https://www.sec.gov/Archives/edgar/data/0000824142/000082414226000034/liveaaonpressreleaseexs.htm