Data center growth accelerates as facility costs pressure margins
- AAON sells high-end heating, ventilation, and air conditioning equipment, with BASX now powering the data center story.
- Total Q2 2026 sales grew 101.2% to $627 million, while overall gross margin fell to 24.3%.
- Backlog reached $1.97 billion at June 30, 2026, helped by a 185.4% jump in BASX-branded backlog.
- The key debate is whether outsourcing and ramp costs fade or become a lasting drag on profit.
- The stock needs strong execution because the growth story is already well known by the market.
Growth won, margins wait
AAON is no longer only a premium HVAC company with a data center side business. BASX has become the main growth engine. Q2 2026 net sales hit $627 million, up 101.2% year over year, with BASX sales surging 216.2%.
The bull case is simple. AI and high-performance computing need far more cooling. AAON sells liquid cooling and other custom systems into that market. The consolidated backlog sits near $1.97 billion as of June 30, 2026.
The bear case centers on structural costs. Gross margin dropped to 24.3% in Q2 2026. The company is using outsourcing and accepting heavy factory ramp costs, notably an $18.1 million overhead charge from the Memphis facility, so they can deliver orders and win share. If those costs do not go away, the backlog may be worth less than bulls expect.
This makes AAON a high-growth execution story with a profitability problem. Revenue visibility is much better than before, but investors need proof that growth can turn into cash and profit.
Custom cooling and rep-led sales
AAON makes money by engineering, building, and selling premium HVAC equipment to property owners and contractors. Its products are often semi-custom or custom, which means they are built for a specific job instead of being simple off-the-shelf boxes.
A key difference is the sales channel. AAON mainly uses independent manufacturers' representatives, not a fully owned sales force. These reps sell across many brands, so AAON believes they can win jobs by solving the customer's full problem. BASX uses more internal selling because its data center and cleanroom products are more custom and customer-specific.
The model works best when factories are full, materials are available, and AAON can build in-house. It breaks when demand runs ahead of internal capacity. That is the current issue: outsourcing helps protect market share, but it cuts into gross margin.
What AAON builds
AAON rooftop units
These are premium rooftop HVAC systems for commercial and industrial buildings. They remain the core AAON-branded product line.
Air handling and makeup air units
These systems move, condition, and replace air inside buildings. They serve schools, factories, retail sites, medical buildings, and other commercial markets.
BASX data center cooling
BASX sells highly customized cooling systems for data centers. Demand is being driven by AI and high-performance computing workloads.
Liquid cooling and CDU systems
The BASX Coolant Distribution Unit controls flow, temperature, and pressure between building water systems and server cooling loops. AAON says the platform supports rack densities above 100 kilowatts.
Cleanroom systems
BASX also serves cleanrooms used in biopharmaceutical and semiconductor production. This gives the company another mission-critical market beyond data centers.
Coils, controls, and heat pumps
AAON Coil Products makes coils and other parts used in AAON and BASX systems. This segment can help supply the rest of the company, but it was hurt by ERP-related production issues in 2025.
Sales mix
Segment shares use net sales for the three months ended March 31, 2026. BASX is growing fastest, but some BASX-related work also flows through AAON Coil Products and the Memphis facility.
What could break
Temporary costs become permanent
High impact · Medium oddsManagement says outsourcing and ramp costs are temporary. The risk is that AAON keeps needing outside production to meet data center demand. If that happens, the long-term gross margin profile could reset lower.
Backlog converts at weak margins
High impact · Medium oddsThe nearly $2 billion backlog gives AAON strong sales visibility. But backlog is not the same as profit. If the BASX backlog requires too much outsourcing, overtime, or working capital, earnings may lag sales.
Memphis overhead stays heavy
High impact · Medium oddsThe Memphis facility is needed for future capacity, but it is heavily weighing on margins. In Q2 2026, Memphis overhead reduced overall gross margin with an $18.1 million charge. That drag needs to shrink as volume rises.
Cash gets tied up in growth
Medium impact · Medium oddsFast data center growth can require cash before customers pay. The risk is that inventories and contract assets keep rising faster than collections.
In one breath
Why is AAON tied to AI?
AI data centers use dense servers that create a lot of heat. AAON's BASX brand sells custom cooling and liquid cooling systems for those sites.
Why did AAON lower its gross margin guidance?
Management chose to prioritize growth and customer delivery over near-term margin. That means more outsourcing and factory ramp costs, which are expensive.
What is the main number to watch for AAON?
Gross margin is the key watch item. Sales growth is strong, but the investment case depends on whether margins improve as more production moves in-house.
Is AAON only a data center company now?
No. AAON still sells rooftop units, air handlers, coils, heat pumps, and controls into many commercial and industrial markets. BASX is the fastest-growing part, but the legacy AAON business still matters.
