Following the completion of internet giants' earnings disclosures, fund managers have detected lucrative opportunities in the liquid cooling sector.
Over the past month, funds heavily invested in liquid cooling have dominated the top five positions for performance elasticity. Previously niche liquid cooling stocks that had minimal public fund allocation are now being embraced by an increasing number of funds. Particularly after the capital expenditure data from internet giants' interim reports landed, identifying the low-key "water sellers" behind AI giants' arms race and replicating the A-share CDN (Content Delivery Network) sector explosion from 2010-2014 driven by internet traffic competition and increased capital spending has become key for savvy fund managers to leverage historical experience and outperform the market.
**Fund Managers Capitalize on New Opportunities**
Astute fund managers have discovered new niche sector opportunities by studying internet giants' financial reports.
Wind data shows that liquid cooling has become the sector with the highest profit elasticity for fund managers recently. Companies like Inspur Information, InvTech, Feilong Co., Goaland, and T&S Communications have become new fund favorites, propelling related funds to the top of performance rankings. As of September 7, the five actively managed equity funds with the highest one-month return elasticity were Chang'an Xinrui Technology, AVIC Opportunity Navigator, Chang'an Macro Strategy, Sino-Australian Performance Driven, and Keystone Leading Economy, with returns of 49.65%, 46.82%, 46.21%, 44.97%, and 43.49% respectively. These products achieved high returns in a short period precisely due to their heavy positions in the liquid cooling sector.
Liquid cooling refers to technology that achieves electronic device heat dissipation through liquid medium, playing a crucial role in AI computing infrastructure. Why has this niche sector performed so vigorously, and how did fund managers precisely identify it?
"Our research team observed many internet companies' Q2 earnings reports and found the key commonality was surging capital expenditure, providing us with a clue to invest in the liquid cooling sector," said a South China-based fund manager. Alibaba, Tencent, and the four major North American internet companies continued to revise up their Q2 capital expenditure, primarily reflecting AI infrastructure investments. As a core upgrade direction for computing infrastructure, liquid cooling technology may benefit from industry demand expansion.
Wang Haoyu, who manages the Chang'an Xinrui Technology Fund and achieved the top gain in the past month, similarly discovered this clue from earnings reports. "Following overseas cloud service providers' earnings releases, we found that North American giants' new round of arms race has begun," Wang Haoyu believes. This round of demand has shifted toward inference, and behind inference is the formation of commercial closed loops, making investment sustainability stronger than the previous round, potentially leading to a Davis double-click for related sectors.
According to financial reports disclosed by major listed companies, Alibaba's Q2 capital expenditure reached 38.68 billion yuan, up 219.8% year-over-year, while Tencent's capital expenditure increased 119% year-over-year to 19.107 billion yuan. Overseas, Google, Microsoft, Meta, and Amazon's combined Q2 capital expenditure totaled $87.4 billion, up 69% year-over-year.
Capital expenditure is closely related to prosperity-driven investment and has become an important indicator for public fund managers' stock selection. Capital expenditure expansion often signals companies' optimism about future profit patterns and capability boundary expansion. Areas experiencing prosperity growth accompanied by capital expenditure expansion tend to have positive feedback on asset prices.
**Technology Upgrade Expectations Attract Heavy Fund Positions**
Technology replacement and upgrading represent another logic behind fund managers' heavy positions in liquid cooling and substantial gains.
Jia Naixin, manager of the GF Tech Innovation Theme Fund, explained that chips generate heat due to power consumption, requiring cooling solutions. For example, smartphones that heat up during extended use have led to cooling accessories and actively cooled phones. Another example is home computers, many transitioning from air cooling to liquid cooling. For computing chips like GPUs, as chip power increases and cluster power density rises, cooling and power systems need deep integration with chips, requiring chip manufacturers to consider cooling and power issues, further increasing liquid cooling's value and barriers. Simply put, liquid cooling demand is growing while technical complexity increases.
Fan Mingyue, manager of the Minsheng Royal Tech Innovation Fund, believes that the liquid cooling sector has clear industrial logic support this year. The core driver is explosive computing demand under AIGC, rapidly increasing single cabinet power density and breaking through traditional air cooling limits. Liquid cooling has become a technical necessity, marking the industry's transition from 0-1 inflection point year. From an economic perspective, liquid cooling offers lower total lifecycle costs and long-term economic viability.
"As AI power density upgrades, traditional air cooling technology can no longer meet heat dissipation needs, making liquid cooling a major industrial upgrade in cooling technology," said Han Lin, manager of the Great Wall Digital Economy Fund. The core is accelerating demand for superior cooling technology driven by continuous chip computing enhancement. Liquid cooling penetration will see leapfrog improvement, transitioning from "optional" to "essential" long-term, evolving toward more advanced technologies like two-phase cooling and immersion cooling, reconstructing data center infrastructure ecology.
Wang Xin, manager of the E Fund Digital Economy Fund, believes current air cooling technology struggles to meet high-power equipment cooling needs, making technology replacement and upgrading inevitable for industry development. While liquid cooling isn't entirely new technology, it previously lacked large-scale adoption due to insufficient industrial necessity. 2026 may become the critical node for liquid cooling technology's scaled deployment, with demand explosion having clear industrial support.
**Public Funds Focus on Overseas Client Presence in Stock Selection**
Despite fund managers' strong optimism for the liquid cooling sector, stock selection decisions require addressing certain considerations.
Han Lin believes liquid cooling solution providers and key component suppliers have relatively concentrated market share, with future opportunities gradually emerging. "Currently, NVIDIA's supply chain is mainly served by Taiwan companies, primarily focusing on server cabinet configurations, while mainland Chinese companies are actively in the sampling stage." Jia Naixin also noted that non-NVIDIA supply chains in mainland China previously had low liquid cooling penetration, mainly applied outside cabinets, but expects mainland internet giants to actively promote liquid cooling solutions starting next year, providing opportunities for mainland liquid cooling companies.
From individual stock selection aesthetics, Jia Naixin prioritizes NVIDIA supply chain companies with the highest profit margins. Second, mainland Chinese companies are expected to expand market share through mass production capabilities and engineering talent advantages. Finally, assessment must consider liquid cooling companies' development stage—whether in sampling or mass production phases—and their supply position advantages within NVIDIA cabinets.
Given highly concentrated downstream customer demand in the liquid cooling sector, many fund managers emphasize that liquid cooling companies' ability to secure major clients is a crucial stock selection factor.
Wang Xin explained that current liquid cooling sector demand concentrates on overseas internet technology giants. Therefore, companies with core major client resources, especially overseas AI giant customers, combined with heat dissipation technology R&D or manufacturing capabilities, possess potential for cross-sector entry into liquid cooling, representing key selection criteria. Such companies may leverage resource advantages to rapidly penetrate markets.
"Priority should be given to liquid cooling companies with existing overseas clients. As liquid cooling represents a new export category, domestic manufacturers face multiple challenges including technology, certification, and localized operations," Fan Mingyue believes. Investment should prioritize certainty first, then elasticity. Initially selecting companies clearly integrated into overseas supply chains with comprehensive product layouts and systematic deployment capabilities and experience. From an elasticity perspective, domestic manufacturers currently struggle to directly participate in overseas system integration business, focusing more on breakthrough in several core components. Therefore, priority goes to liquid cooling component companies with clear overseas breakthroughs and obvious positioning advantages.
**Funds Optimistic About Industrial Logic of Volume and Price Growth**
Regarding future liquid cooling sector sustainability, multiple fund managers judge that rising liquid cooling penetration rates may drive volume-price growth comparable to optical modules and PCB sectors.
Jia Naixin analyzed that among major AI industry chain sectors—chips, liquid cooling, communications, and power—liquid cooling may have the strongest inflation attributes. Chips remain in technological advancement processes, optical modules upgrade from 800G to 1.6T, and PSU power supply unit power is increasing, showing efficiency improvements and obvious deflation in these segments. However, liquid cooling's upper limit is governed by macroscopic physical laws, such as water's specific heat capacity and copper's thermal conductivity, potentially giving liquid cooling stronger inflation attributes and sustainability. Future liquid cooling industry catalysts may include large-scale domestic AI liquid cooling applications and new liquid cooling technology changes.
"Although liquid cooling sector has seen significant short-term gains with seemingly expensive valuations, related companies' future achievable profit scale is substantial," Fan Mingyue believes. The most challenging aspect for domestic companies in overseas markets is the 0-1 breakthrough. Once achieved, domestic listed companies' competitive advantages will gradually emerge, with leading stocks potentially replicating optical module and PCB performance.
Han Lin emphasized that the liquid cooling sector represents an industrial trend with high certainty, strong sustainability, and broad scope, gradually transitioning from introduction to rapid growth phases. From an industrial positioning perspective, current liquid cooling resembles optical modules' starting point in 2023. Some liquid cooling solution shipments began in Q1 this year, with Q2-Q3 showing obvious quarterly acceleration. Industry penetration rates may double next year, and with next-generation solutions, liquid cooling may enter another volume-price growth era.
Wang Xin believes liquid cooling represents a high-value subdivision within the AI industry chain, with the sector transitioning from "expectation trading" to "fundamental-driven" performance. Previous liquid cooling performance primarily based on "trillion-yuan market space" expectations will subsequently depend on fundamental marginal changes.
He suggests future space requires matching internal and external logic. Internal logic requires companies to accelerate technology deployment (such as high-power adaptation capabilities) and advance major client cooperation, achieving transformation from "technology reserves" to "performance realization." External logic requires AI server power improvement pace meeting expectations, overseas major client orders tilting toward domestic suppliers, while avoiding technology iteration impacts on industry demand.