20 Industrial Stocks Already Riding the AI Wave

9. Comfort Systems USA, Inc. (NYSE:FIX)

Number of Hedge Fund Holders: 34    

YTD Return as of August 1: 64%

Approximate Percentage Revenue from AI: 22%

Comfort Systems USA, Inc. (NYSE:FIX) provides mechanical and electrical installation, renovation, maintenance, repair, and replacement services. The company designs and installs HVAC and electrical systems for data centers. These data centers are used by AI firms. These systems are also used by chip fabrication firms. The firm has the advantage of being the largest mechanical contracting firm in North America. It has 45 operating companies in 170 locations across the continent. This brand value enables the firm to build on an already existing network of mechanical and electrical work for hyperscale customers in the past.

Brian Lane, the CEO of Comfort Systems USA, Inc. (NYSE:FIX), remarked during the second quarter earnings call that people were forgetting that streaming giants had started the data center trend and compute power, required for AI decision-making, could be added onto existing data center builds. He noted that AI was an incremental addition to a very,very solid pipeline for the firm already.

In its Q1 2024 investor letter, Third Avenue Management, an asset management firm, highlighted a few stocks and Comfort Systems USA, Inc. (NYSE:FIX) was one of them. Here is what the fund said:

“We sold our positions in Sphere Entertainment and Comfort Systems USA, Inc. (NYSE:FIX). The two closed positions highlight the nuances between managing the portfolio’s Long-Term Compounder investments (“LTC”) versus Time Arbitrage/Special Situation (“TA/SS”) positions (see Portfolio Strategy section below for more on these investment types).

While Sphere exemplifies a TA/SS investment, Comfort Systems was an ideal LTC position. We affectionately labeled Comfort Systems a “thin file” investment, meaning there was little drama attached to the thesis, and Comfort Systems quietly compounded book value over time. It is a low-margin business, yet it generates cash flows, and its management prudently allocates capital. Comfort Systems was owned by the Fund for over seven years and compounded shareholder return at a prodigious 37% annual rate over the ownership period. Comfort’s end markets, management team, culture, and compensation systems checked our boxes. We sold the position as Comfort Systems grew its market capitalization to $9 billion. Thus, it was no longer a small cap. It was an exceptional investment for Fund shareholders. We wish the company continued success and are grateful for their efforts.”