If asked to name the top-performing stocks powered by the AI boom, most investors would probably guess Nvidia (correct), maybe Meta (wrong) and a bunch of other hyperscalers (also wrong). You’d be hard pressed to find anyone who would answer Vertiv, an 80-year-old AC maker. But since Vertiv went public in early 2021, its market cap has exploded almost 10x from under $11 billion to $109 billion. Over that six-and-a-half year span, its annualized return of 50.5% stands third in the S&P 500, exceeded only by Comfort Systems (55.2%) and Nvidia (54.9%).
And the story gets better from there. The man responsible for this unlikely turn of events is a retired industrialist who almost didn’t take the job. Back in 2019 David Cote was looking for a new project. He had just retired from an illustrious career running Honeywell, where he engineered a spectacular revival after a failed acquisition by GE left the industrial giant rudderless. But he felt like he had another chapter left in him. So he brokered an unusual arrangement with Goldman Sachs: they’d present Cote with lots of acquisition candidates, and raise the funding once he found a choice that the investment bank also favored. Cote’s an ace at spotting overlooked comers; he’d bought over 100 companies at Honeywell, deals that substantially quickened its expansion and enhanced its profitability. In fact, Cote was looking for enterprises that met the same criteria that he’d successfully applied at the aircraft and auto equipment maker. The target would need to occupy a dominant or potentially dominant position in an industry that’s either fast-rising and profitable now or en route; promise plenty of room to grow both internally and through takeovers; stand rife for expanding margins; and perhaps most important, offer the opportunity to forge a sector-leading new technology.
“I had weekly phone calls with the Goldman group, and we looked at over 1,000 companies, and it was Goldman that found them,” recalls Cote. The company in question was Vertiv, an eighty-year old industrial AC purveyor that, under his leadership pivoted as a provider of a revolutionary technology that’s critical to accelerating the rise of AI. To deploy Nvidia GPUs and other superpowered intensive gear, data centers need to keep the servers super-cool, as never before. It’s Vertiv’s system using newly-introduced direct-to-chip liquid rather than traditional air cooling, more than any other solution on the market, that’s making it happen.
Says Cote: “It was not like I was an AI savant, but I knew that if I positioned myself in the middle of the data industry there was a good chance something good would happen.” For companies and executives who’ve spent years anxiously bolting an AI strategy onto their business, Cote’s story is a useful outlier. He didn’t chase a hot technology, he noticed a huge trend and quietly became indispensable to it.
Cote wanted a place at the center of the digital age, but Vertiv got off to a rocky start
Surprisingly, Cote’s blithe, down-home style actually fits the freewheeling AI ethos. This hip-hop loving, Harley-Davidson sporting raconteur’s persona has long been hewed closer to Silicon Valley than mainstream Big Corporate. As I related in a 2012 Fortune story on how he revived Honeywell, Cote (pronounced Co-tee) grew up in a small New Hampshire town where his eighth-grade educated dad ran a garage. “I didn’t know what success was because it was hard to find anyone in town you’d describe as successful,” he told me. Dave took a one-year break from college to buy a 33-foot lobster boat with a buddy, and trawl for cod in Maine, an experience that convinced him that “You can work very hard and accomplish absolutely nothing.”
Starting as a night-shift worker at a GE aircraft engine plant in his native New Hampshire, Cote rose through the dishwasher and silicone divisions to head the appliance franchise. But his 25-year career at GE ended through his explosive firing by its legendary CEO, Jack Welch. As Cote relates the 1999 incident, Welch strode up to Cote at the HQ dining room in Fairfield, Conn., and remained standing and didn’t bother with niceties. “The first words out of his mouth were, ‘Dave, I want you out of the company by year end!’” Cote recalls. Cote asked his boss what he’d done wrong, “And Jack then repeated, even louder, ‘You don’t understand, I want you out of the company by year end!’’’ Cote says he kept asking for an explanation. “And each time I asked, Jack would yell the same words, only louder each time. Jack had a high, squeaky voice, and the louder he yelled, the higher and squeakier his voice got. I got plenty of squeaking, I just never got an answer on what Jack didn’t like.”
In 2002, Cote took the helm at Honeywell, the conglomerate that made such staples as avionics, specialty chemicals, and auto parts from turbochargers to spark plugs, and over the next 15 years, delivered shareholder returns that beat the S&P 500 by 150%. At Honeywell, Cote regularly went to work, and even to board meetings, in a beat-up bomber jacket, baggy jeans and work boots. His office featured a gurgling, 210 gallon fish tank, and a continuous stream of music from his iTunes playlist of 10,000 songs. “The music never stops!” he intoned. Every couple of months, Cote would spend a full day isolated in his office––no phone calls or meetings––to ponder a big strategic idea. While Billie Holiday’s “God Bless the Child” or Jay-Z’s “Hard Knock Life” played in the background, he’d weigh such issues as the best design for a new generation of turbochargers.
Cote had never heard of Vertiv when the Goldman team brought it to his attention. Founded in 1946, Vertiv’s forerunner became the “network power” arm of Emerson Electric that developed the first precision cooling system for IBM mainframes. By the time Cote found it, Emerson had dumped Vertiv to California private equity firm Platinum Equity. “Emerson said it was a horrible business, they hated it,” says Cote. “They couldn’t wait to get out of it.” Under Platinum, Vertiv was struggling in its traditional trade: supplying air cooling for the then-routine functions of data centers, such as primary storage, running business software, and furnishing cloud computing for website hosting.
In early 2020, Cote and an investor group assembled by Goldman bought Vertiv for what proved an ultra-bargain $4 billion via a “special-purchase acquisition company,” and simultaneously took it public on the NYSE. Cote acknowledges that SPACs—where renowned “sponsors” raise money for an acquisition before choosing what they’re going to buy––even then had a “tawdry reputation,” and they’ve since disappeared. But this one worked: Vertiv’s one of the few SPACs that launched an enduring enterprise.
Cote found Vertiv so attractive for a simple reason: It had a big foothold in what he perceived as one of the great industries of the future, digital data, and with the right products, could ride the train to glory. “The two biggest twentieth-century trends are biotech and the digital age, and I thought the latter had 50 or 60 years to go.”
In part, Vertiv was lagging because it concentrated on the wrong customers. “Their largest customers were the major banks, while their competitors were working with Google and Microsoft,” says Scott Davis, an analyst at Melius Research. “That’s why they were poorly positioned and losing market share. One of Dave’s first moves was repositioning Vertiv to serve the hyperscalers.
At the time, the AI craze was still several years away. But Cote reckoned that the existing industry was on the cusp of a huge upswing. “When I got to Vertiv, pre-AI data generation was growing at 20% a year, but data centers were growing at 4%,” he says. “It didn’t make sense to me when all that data is being created and increasing everywhere. Machine learning, the predecessor to AI, was already requiring far more data. Eventually, the capacity of the existing centers was going to fill up, and we’d need a lot more of them. Data center growth has to approximate digital data growth. It was a tailwind no one was paying attention to.”
It also encouraged Cote that Vertiv looked an awful lot like Honeywell before Cote dove in. Vertiv suffered from anemic sales growth, and its operating margins stood at a lowly 8% to 9%. “They could have been 25% to 30%,” states Cote. All of that underperformance provided rich territory for an expert operator like Cote to mine.
At first, Vertiv seemed headed not for glory, but disaster. Three weeks after Vertiv’s debut on the NYSE, COVID struck. “The stock dropped, and Wall Street thought we were going bankrupt,” says Cote. Then, business bounced back fast as folks in the stay-at-home economy spent much more time on their cellphones and PCs. But the surge in orders failed to benefit Vertiv. “We were getting all this business from competitors, but the reason was that we were underpricing our equipment by 20% to 30%,” says Cote. Profits cratered. By early 2023, the stock was hovering as low as $13, down roughly 55% from its high of nearly $29 in the eighteen months earlier.
To repair the problem, Cote effectively suited up by getting heavily involved in day to day management. In January of 2023, the board replaced the then-CEO with Giordano Albertazzi, a mechanical engineer trained in Milan and at Stanford, and a veteran of the Emerson years who’d harvested the kind of experience Cote craves, starting as a plant manager, and keeping that conviction that the best solutions for making things are found not in the c-suite, but on the shop floor mapping workflows and speeding assembly lines.
“It’s one thing to have the wind at your back as Dave did in the first couple of years. But companies almost always hit a big speed bump early on, and the really good ones are those that can fix it, and that’s what Dave did,” says Ethan Brown, portfolio manager for Omega Advisors, the family office for fabled investor Leon Cooperman that’s a top 25 holder of Vertiv stock via a position exceeding $500 million. “Like me, Lee’s long been a big admirer of Dave Cote. In fact, our initial investment in 2020 was a bet on Dave, and when the stock cratered Lee and I swung hard, and tripled our position.”
Vertiv adopted an all-new cooling technology from the outside—via acquisition
Even during dark periods, Cote and Albertazzi were already nurturing the strategy that would transform Vertiv: Hatching groundbreaking products. “When I got to Honeywell, 20% of the engineers were in software. By the time I left, we’d increased the number of engineers by 4x, and 50% were doing software,” Cote recalls. So from the start, Cote aimed to reprise the R&D-driven quest for new products he’d used in his old job. At the time of the public offering, Vertiv was devoting a slender 3% of sales to R&D, and Cote installed a program aimed at raising that number to the 6% it’s reached today, on far higher revenues. But the decisive move came from the outside, from another Cote specialty of using small, snap-on acquisitions to gain fresh technologies. And this one would prove a game-changer.
Around 2021, Vertiv began collaborating with a British startup called CoolTera on a promising new process called liquid direct-to-chip (DTC) cooling. Around the same time, Vertiv began a collaboration with Nvidia to discuss the cooling technology its hyperscaler customers would need to deploy Nvidia’s GPUs in their new data centers, the chips that could reach new frontiers in output and efficiency. “Nvidia helped us understand the technology that would be needed,” says Cote. Adds Albertazzi, “Nvidia knew about the CoolTera products through us. It was clear that Nvidia’s comfort level with their products was quite strong.”
The technology is complicated to build, but simple to visualize. The problem with air cooling is that its not sufficient to prevent dense racks of GPUs from overheating, severely curtailing their efficiency. But the breakthrough is a water and glycolic compound that travels through tubes about the width of straws into a “cold plate” that sits directly over the semiconductors. The liquid absorbs the heat, and through a heat-exchange process, transfers it to a “cool tower” chilling system on the roof or outside the facility resembling a supersized AC condenser unit. DTC maintains the GPUs at a temperature of between 65 and 75 degrees. It uses no new water; the same blend keeps re-circulating. The technology reduces the data center area required for an equivalent amount of computing by 50 to 70%. As Albertazzi puts it, “It’s like moving from a Toyota to a racing car.”
In December of 2023, Vertiv bought CoolTera. Even before the acquisition, Cote and Albertazzi were betting big on direct-to-chip (DTC), and planned to use the CoolTera system. “Starting in 2023, orders were really starting to take off, and I thought it would continue,” says Cote. “It was the sunburst we’d been waiting for.” In early 2023, Vertiv launched a plan to increase all production three-fold in three years, primarily for new DTC products.” Vertiv added production lines and extra shifts at several existing plants, and then erected a 215,000 square foot greenfield facility in South Carolina that opened in October of 2024. This year, Vertiv hit the production goal, and it’s now embarked on phase two, a drive to triple capacity again by 2029.
Vertiv effectively commercialized the CoolTera DTC product that was pretty much a prototype before the acquisition, practically from scratch. Says Albertazzi, “It was the beginning of the re-architecture of data center infrastructure to accelerate higher and higher density compute.” Today, Vertiv battles important rivals in DTC, including Schneider Electric and Eaton, but reportedly holds the biggest market share both in that new technology, and the overall data center cooling market that’s running at over $30 billion today, and expected by Grand View Research to reach $128 billion by 2033, for a 22% annual growth rate.
Cote’s versatility greatly impressed Brown of Omega Advisors. “Dave switched from fixing operations to seizing on an unbelievable growth opportunity. He saw it clearly early on, and made sure Vertiv invested in the supply chain, distribution, production and R&D to take full advantage of probably the most important secular change we’ll see in my lifetime.”
For Vertiv’s leaders, the best way to make the products powering AI is the old-fashioned way: By nurturing a culture of listening
Cote and Albertazzi are hawks at ingraining a distinct culture that they claim worked great in their old-line manufacturing roles, and provides the same benefits in the realm of AI. It comes in two related parts: Get everyone comfortable about frankly airing problems, sans retaliation, and empower—and rely on—the folks on the shop floor to find the quickest, most reliable, and highest-quality ways to make your product. Says Cote, “Before, no one complained about anything. I want them bitching about crummy processes. The sales people, the hourly people on the floor. How do I make sure I have better processes? By having a thinking company. We have 20,000 people. If they all think every day about making the company better, and not just doing what they’re told, the better you’ll be.”
They’ve also instituted a “lean” template called the Vertiv Production System modeled on the one Cote installed at Honeywell modeled on the “kaizen” or continuous improvement principles pioneered at Toyota in Japan. It’s also close to the method that Larry Culp—whom Cote greatly admires—deployed to revive GE and that he now uses at GE Aerospace. It’s all about getting managers and engineers down to the assembly lines where they brainstorm with mechanics and machine operators to design the most efficient workflows. Observes Albertazzi, “The idea is that the best ideas come from the people who actually do the job. That’s Dave’s mantra, and I’m a firm believer.”
So is Cote worried about the Chinese AI models such as DeepSeek that may prove much cheaper to use than the U.S. versions, and curb what the hyperscalers can earn selling their processing enterprise tokens? You’d think that’s a potential threat to the flood of orders Vertiv’s now getting from the likes of Microsoft and co-location giant Equinix. Not so, says Cote. “It’s all about how much you’re billing customers for the AI they’re using,” he says. “Go back 24 months to when China announced DeepSeek. It was supposed to undermine the hyperscalers. But if you take something that’s valuable to people and make it less expensive, they’ll use more of it. If you find a way to process data more cheaply you’ll process a lot more data.”
This veteran can barely believe the triumph of his Chapter Two. As Cote told this writer in a reflective moment, “When something this wonderful happens you wonder how long it will last. But I did my research, and I found that what we do is fundamental to the digital age, and will go on for a long time.” From GPUs to memory disk drives to Vertiv’s DTC gear, AI is in large part a manufacturing business. And as Cote shows, yesterday’s best practices still point the way forward in this dizzying new adventure.
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