Comfort and Consequences

by

AI and Investment

The current enthusiasm for all things digital has, predictably, produced beneficiaries. One observes a familiar pattern: vast sums are flung at innovation, and a few fortunate companies find themselves in the right place at the right time. Nvidia, of course, has enjoyed the lion’s share of the acclaim, and the corresponding increase in valuation. But to focus solely on the obvious is, as ever, to miss the more interesting story.

Comfort Systems USA (FIX 0.53%), a name which suggests neither excitement nor particular brilliance, has quietly outperformed its more celebrated rival. An increase of 876% over three years, compared to Nvidia’s 696%, is not to be dismissed. The S&P 500, trailing far behind at a mere 74%, appears positively moribund by comparison. One begins to suspect a competence that is almost indecent.

A record backlog, doubled in the last year, suggests that this is not merely a fleeting phenomenon. One might even venture to suggest a degree of foresight, a quality rarely encountered in the financial world.

Data Center Utilities

The Latecomer’s Advantage

Comfort Systems provides, in essence, the plumbing and electrical wiring for the modern age. Mechanical, electrical, process piping, building automation – the unglamorous necessities that underpin our increasingly digital existence. Revenue has doubled in a year, tripled in three. The confluence of technology and a belated recognition of the virtues of domestic manufacturing – or, as it is now termed, ‘on-shoring’ – have clearly played their part.

The company’s strength, however, lies in its clientele. Data centres, chip manufacturing, pharmaceuticals, healthcare, energy storage – these are not the businesses one associates with spectacular growth. Yet, it appears they are. That a provider of building utilities should benefit from the current frenzy surrounding artificial intelligence is hardly surprising, but the scale of the benefit is noteworthy. One suspects a degree of shrewd positioning, or perhaps simply good luck. It is often difficult to tell the difference.

The company’s Chief Financial Officer, William George, offered a particularly lucid explanation of their position on a recent earnings call:

“We are not booking backlog for things that are being committed to today. The backlog we book is for stuff that is already – the holes have been dug, things are being built. So, you know, for a long time, people have thought of construction in a rubric of there are the early cycle players – that is mostly engineers and architects. There’s the mid-cycle players, it’s the people who start – dig the hole, start the building, and then we’re what’s called a late-cycle player.”

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Riding the Wave

Mr. George’s comments suggest that the current, impressive backlog reflects commitments made some time ago. The recent surge in hyperscaler capital expenditure, exceeding $600 billion this year, will not translate into revenue for Comfort Systems until 2027 or 2028. A delay that, for some investors, may prove unbearable.

The stock has, naturally, anticipated this growth. Earnings per share doubled last year, but the resulting price increase has pushed the forward price-to-earnings ratio to a somewhat alarming 40. Management, however, is mitigating this with a share buyback program, a tactic that, while hardly revolutionary, is undeniably effective.

The company is generating strong cash flow, having repurchased $216 million worth of shares last year. This will, presumably, boost earnings per share in the coming years, as the business continues to expand. The parabolic rise may be over, but Comfort Systems USA still appears to be a reasonably secure repository for investor capital. A quiet competence, in a world increasingly defined by noise and speculation. One might even call it… comfortable.

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2026-02-28 01:22