The rise of artificial intelligence (AI) has produced some big winners in the market. It has fueled even large-cap stocks to report surprisingly high growth rates. Investors who have owned Nvidia stock over the last several years have enjoyed the payoff from that growth.
There’s another large-cap name, though, that has significantly outperformed Nvidia. Investors who haven’t been paying attention to Comfort Systems USA (FIX 0.53%) should take a look. Its stock price is up by 876% over the last three years, compared with Nvidia’s 696% gain and the S&P 500 index’s 74%.
With a record backlog that’s doubled over the last year, it’s a good time for investors to get to know Comfort Systems USA.
Data centers have been a boon for Comfort Systems USA. Image source: Getty Images.
Late-cycle player
Comfort Systems provides specialized expertise for a variety of services, including mechanical, electrical, process piping, modular construction, and building automation controls. Revenue has doubled over the past year and tripled in just three years. Trends supporting that growth have been technology and on-shoring manufacturing.
The key for investors, though, is specifically where its work is coming from. And how the company books its business. Market strength is coming from a range of sectors, including data centers and chip manufacturing, pharmaceuticals, healthcare, and energy storage. It shouldn’t be a surprise that a major provider and servicer of building utilities would benefit from the AI data center building boom. It’s reasonable to expect more, given Comfort Systems’ position in the industry hierarchy.
The company’s record backlog doesn’t yet reflect all the hyperscaler capital expenditure plans for data centers that have recently been announced. Here is how CFO William George explained it on the company’s 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.
Today’s Change
Current Price
Comfort Systems benefits from technology spending tailwinds
The CFO’s comments suggest that the company’s current recod-level backlog reflects projects committed to more than a year ago. Technology hyperscalers have been ramping up spending plans more recently than that. More than $600 billion in hyperscaler capital expenditure announcements have been made this year. George went on to clarify that those commitments will reflect revenue that should flow to Comfort Systems in 2027 and 2028.
Some of this is already reflected in the stock following its meteoric rise. Earnings per share doubled last year, but the stock price rise has pushed the forward price-to-earnings ratio to about 40. But earnings will also get a boost from management’s share buyback plan.
The company has been generating strong cash flow, using $216 million to repurchase shares last year. That will help boost earnings per share in the coming years as the business also continues to grow. Returns might not be as parabolic from here, but Comfort Systems USA still looks to be a good place for investor capital.
Howard Smith has positions in Nvidia and has the following options: short March 2026 $175 calls on Nvidia. The Motley Fool has positions in and recommends Comfort Systems USA and Nvidia. The Motley Fool has a disclosure policy.
