Nvidia just unexpectedly tanked these stocks, and here’s why

Investors are feeling less hot about the makers of cooling systems for data centers after the CEO of Nvidia Corp. stoked concerns that demand for their products could dry up. 

Shares of Modine Manufacturing Co. led declines in this sector, tumbling as much as 21% Tuesday before recovering some of those losses to close about 7.5% lower. Other makers of water-cooled systems and similar products—including Johnson Controls International Plc, Trane Technologies Plc, and Carrier Global Corp.—also fell as much as 6.2% on Tuesday. 

To blame? The next generation of Nvidia’s computer chips, announced on Monday, which won’t require the same type of cooling systems. That’s because the new Rubin platform will feature “extreme codesign” that integrates chips, trays, racks, and more, Jensen Huang, the chipmaker’s CEO, said during a keynote speech at the Consumer Electronics Show in Las Vegas on Monday. 

100% liquid-cooled system

Describing the 100% liquid-cooled system that’s now in production as “a breakthrough,” Huang’s brief remarks in a hourlong-plus presentation managed to rattle investors, as chillers have previously been a crucial component in data centers.

“The comments create some questions/concerns about the longer-term positioning of chillers within data centers over time, particularly as liquid cooling becomes more prominent,” Baird analyst Timothy Wojs wrote in a note to clients, as Bloomberg reported. Liquid cooling allows systems to operate at higher temperatures, Wojs added.

More fallout from CES

And makers of cooling systems weren’t the only victim of Huang’s CES comments: Shares of Amphenol, which makes cables, sensors, and other connectors for data centers, fell as much as 6.6% on Tuesday before ending the day 1.1% higher amid worries that its products would no longer be needed, as Barron’s reported.

While Huang’s comments caused turmoil in other parts of the stock market, Nvidia stock also fell even as the S&P 500 notched a new record high on Tuesday. The stock closed nearly 0.5% lower.