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AIPROPX ReportFortune · 2h ago
The veteran Fortune 500 CEO who turned an 80-year-old AC company into an AI darling
If asked to name the top-performing stocks powered by the AI boom, most investors would probably guess Nvidia (correct), maybe Meta (wrong) and a bunch of other hyperscalers (also wrong). You’d be hard pressed to find anyone who would answer Vertiv , an 80-year-old AC maker. But since Vertiv went public in early 2021, its market cap has exploded almost 10x from under $11 billion to $109 billion. Over that six-and-a-half year span, its annualized return of 50.5% stands third in the S&P 500, exceeded only by Comfort Systems (55.2%) and Nvidia (54.9%).
And the story gets better from there. The man responsible for this unlikely turn of events is a retired industrialist who almost didn’t take the job. Back in 2019 David Cote was looking for a new project. He had just retired from an illustrious career running Honeywell , where he engineered a spectacular revival after a failed acquisition by GE left the industrial giant rudderless. But he felt like he had another chapter left in him. So he brokered an unusual arrangement with Goldman Sachs: they’d present Cote with lots of acquisition candidates, and raise the funding once he found a choice that the investment bank also favored. Cote’s an ace at spotting overlooked comers; he’d bought over 100 companies at Honeywell, deals that substantially quickened its expansion and enhanced its profitability. In fact, Cote was looking for enterprises that met the same criteria that he’d successfully applied at the aircraft and auto equipment maker. The target would need to occupy a dominant or potentially dominant position in an industry that’s either fast-rising and profitable now or en route ; promise plenty of room to grow both internally and through takeovers; stand rife for expanding margins; and perhaps most important, offer the opportunity to forge a sector-leading new technology.
“I had weekly phone calls with the Goldman group, and we looked at over 1,000 companies, and it was Goldman that found them,” recalls Cote. The company in question was Vertiv, an eighty-year old industrial AC purveyor that, under his leadership pivoted as a provider of a revolutionary technology that’s critical to accelerating the rise of AI. To deploy Nvidia GPUs and other superpowered intensive gear, data centers need to keep the servers super-cool, as never before. It’s Vertiv’s system using newly-introduced direct-to-chip liquid rather than traditional air cooling, more than any other solution on the market, that’s making it happen.
Says Cote: “It was not like I was an AI savant, but I knew that if I positioned myself in the middle of the data industry there was a good chance something good would happen.” For companies and executives who’ve spent years anxiously bolting an AI strategy onto their business, Cote’s story is a useful outlier. He didn’t chase a hot technology, he noticed a huge trend and quietly became indispensable to it.
Cote wanted a place at the center of the digital age, but Vertiv got off to a rocky start
Surprisingly, Cote’s blithe, down-home style actually fits the freewheeling AI ethos. This hip-hop loving, Harley-Davidson sporting raconteur’s persona has long been hewed closer to Silicon Valley than mainstream Big Corporate. As I related in a 2012 Fortune story on how he revived Honeywel l, Cote (pronounced Co-tee) grew up in a small New Hampshire town where his eighth-grade educated dad ran a garage. “I didn’t know what success was because it was hard to find anyone in town you’d describe as successful,” he told me. Dave took a one-year break from college to buy a 33-foot lobster boat with a buddy, and trawl for cod in Maine, an experience that convinced him that “You can work very hard and accomplish absolutely nothing.”
Starting as a night-shift worker at a GE aircraft engine plant in his native New Hampshire, Cote rose through the dishwasher and silicone divisions to head the appliance franchise. But his 25-year career at GE ended through his explosive firing by its legendary CEO, Jack Welch. As Cote relates the 1999 incident, Welch strode up to Cote at the HQ dining room in Fairfield, Conn., and remained standing and didn’t bother with niceties. “The first words out of his mouth were, ‘Dave, I want you out of the company by year end!’” Cote recalls. Cote asked his boss what he’d done wrong, “And Jack then repeated, even louder, ‘You don’t understand, I want you out of the company by year end!’’’ Cote says he kept asking for an explanation. “And each time I asked, Jack would yell the same words, only louder each time. Jack had a high, squeaky voice, and the louder he yelled, the higher and squeakier his voice got. I got plenty of squeaking, I just never got an answer on what Jack didn’t like.”
In 2002, Cote took the helm at Honeywell, the conglomerate that made such staples as avionics, specialty chemicals, and auto parts from turbochargers to spark plugs, and over the next 15 years, delivered shareholder returns that beat the S&P 500 by 150%. At Honeywell, Cote regularly went to work, and even to board meetings, in a beat-up bomber jacket, baggy jeans and work boots. His office featured a gurgling, 210 gallon fish tank, and a continuous stream of music from his iTunes playlist of 10,000 songs. “The music never stops!” he intoned. Every couple of months, Cote would spend a full day isolated in his office––no phone calls or meetings––to ponder a big strategic idea. While Billie Holiday’s “God Bless the Child” or Jay-Z’s “Hard Knock Life” played in the background, he’d weigh such issues as the best design for a new generation of turbochargers.
Cote had never heard of Vertiv when the Goldman team brought it to his attention. Founded in 1946, Vertiv’s forerunner became the “network power” arm of Emerson Electric that developed the first precision cooling system for IBM mainframes. By the time Cote found it, Emerson had dumped Vertiv to California private equity firm Platinum Equity. “Emerson said it was ...
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