AAON Explodes 23% as BASX Data Center Sales Triple & Guidance Jumps to 75% Growth, Putting a $100 Price Target

AAON (NASDAQ:AAON) was one of the biggest winners on a red tape. The HVAC and data center cooling maker reported third-quarter results after Monday’s close. On Tuesday the stock jumped 23.3% to $77.52 and traded as high as $77.70, up 23.6%, at the session’s peak. It opened with a premarket gain of about 22% and held most of that move through a session in which the S&P 500 fell 0.71% to 7,496.17 and the Nasdaq lost 0.87% to 25,034.07.

Part of the move started a day earlier. On Monday, ahead of the report, AAON rose 9.93% to close at $62.87, up from Friday’s $57.19. That came during a broad Monday rally in chip and AI infrastructure names, with the Philadelphia Semiconductor Index up 7%. In after-hours trading Monday, once the results came out, the stock climbed another 14.14% to $71.76. Measured from Friday’s close, AAON has now gained 35.5% in two sessions, adding more than $20 a share.

The rally starts from a deeply depressed level. Even at $77.52, AAON sits 48.5% below its 52-week high of $150.46. The stock spent much of the autumn under pressure as investors worried about margin dilution from the BASX data center ramp, heavy capital spending, and two years without positive free cash flow. Tuesday’s report answered several of those worries at once, and the market re-rated the stock accordingly.

The headline numbers in the company’s third-quarter release explain the reaction. Net sales rose 84.1% to a record $707.4 million, against a consensus of $599.7 million, a beat of more than $105 million. Diluted EPS came in at $0.83, against $0.56 to $0.57 expected and $0.37 a year earlier. Operating income more than doubled to $100.0 million. The company raised its 2026 sales growth outlook to 72%–75%, from 55%–60%.

It was not a clean quarter. AAON restated its first- and second-quarter results and disclosed a material weakness in internal control over financial reporting. In most cases that combination would hit a stock hard. Here the market looked past it, because the operating beat was so large and because the restatement raised earlier revenue rather than cut it. That trade-off between growth and governance runs through the rest of this forecast.

A Record $707.4 Million Quarter

The third quarter was the biggest in AAON’s history by a wide margin. Net sales of $707.4 million were up $323.2 million from $384.2 million a year earlier and up 10% from the second quarter. For the first nine months of 2026, net sales reached $1,842.1 million, against $1,017.9 million in the same period of 2025, an 81% increase.

Profit grew faster than sales below the gross line. Gross profit rose 76.4% to $188.5 million. Operating income rose 129.3% to $100.0 million from $43.6 million, the first quarter above $100 million in company history. Net income rose to $69.0 million from $30.8 million. Diluted EPS of $0.83 was up 124.3%, with no adjustments in the quarter, so GAAP and adjusted EPS matched. For the nine months, GAAP diluted EPS was $2.06 and adjusted EPS was $2.08.

EBITDA confirmed the operating leverage. Third-quarter EBITDA was $127.2 million, up from $63.6 million, and the adjusted EBITDA margin rose to 18.0% from 16.5% a year earlier. Nine-month EBITDA was $308.1 million, or $309.4 million adjusted, at a 16.8% margin. That margin expansion matters because it shows the ramp in data center volumes is starting to pay off, even with new plants still running well below capacity.

The size of the beat stands out. A $105 million revenue surprise on a $600 million estimate is a 17.9% miss for the forecasters, which is very rare for an industrial manufacturer. It happened because AAON’s capacity expansion came online faster than expected. The company converted backlog into shipments at a pace the market had not modeled, especially in BASX.

Orders also kept growing. Total orders rose 10%, national account orders rose nearly 70%, and BASX order activity jumped 116% sequentially in the quarter. That is the most important number for the forecast: it shows the record sales did not simply drain the order book. Demand is still coming in faster than the company can build product, and that supports growth well into 2027.

BASX and Liquid Cooling Drive the Story

BASX, the data center cooling business, is now the bigger half of AAON. BASX-branded sales grew 218.3% to a record $397.2 million in the quarter, about 56% of total sales. A year ago BASX was a minority of the business. AAON-branded sales, the traditional rooftop and commercial HVAC line, grew 19.6% to $310.2 million, also a record. Both brands grew, but the mix has flipped toward data centers.

Liquid cooling is the fastest-growing piece. BASX-branded liquid cooling sales rose 255.6% to $165.5 million in the quarter, recorded in the AAON Coil Products segment. Over the past 12 months, liquid cooling sales reached $450 million, up 188%. That product line serves the newest generation of AI data centers, where high-density GPU racks produce too much heat for air cooling alone. As racks from Nvidia’s latest platforms deploy at scale, demand for liquid cooling systems rises with them.

The reported segments show where the growth sits. The BASX segment posted net sales of $231.3 million, up 207.4%, with a 28.7% gross margin. AAON Coil Products posted $192.6 million, up 174.2%, with a 25.8% gross margin, up from 11.0% a year earlier on better pricing. AAON Oklahoma, the legacy HVAC business, posted $283.5 million, up 18.7%, with a 25.5% gross margin, or 32.8% adjusted for Memphis overhead. The company plans to resegment into AAON and BASX brands with its fourth-quarter report and will recast historical figures.

Management described BASX capacity as more than $2 billion of annual revenue, and said that capacity will not be fully used by the end of 2027. That gives the business significant room to grow without another major build-out. At the current run rate of about $1.6 billion annualized for BASX-branded sales, the company has room for roughly 25% more volume before it needs new plants.

BASX sits in the middle of the AI infrastructure spending cycle. On Tuesday Nvidia fell 6.5% on governance concerns around its CEO, but its business is still guiding to $108 billion of quarterly revenue. Every data center that deploys those racks needs cooling. AAON is one of a small group of suppliers able to deliver custom systems at scale, and that position is what the market paid for on Tuesday.

A $1.85 Billion Backlog

Backlog gives AAON unusual visibility. At September 30, total backlog stood at $1,854.5 million, up 40.5% from a year earlier. BASX-branded backlog was $1,355.2 million, up 51.1% and about 74% of the total. AAON-branded backlog was $499.3 million, up 18.0%. The backlog covers more than two quarters of sales at the third-quarter run rate.

Backlog did fall from the second quarter. Total backlog was $1,960.3 million at June 30, so it declined 5.9% sequentially, and AAON-branded backlog fell 7.6%. That reflects the faster conversion of orders into shipments as new capacity came online. In other words, the company drew down the order book because it built more product, not because orders slowed. BASX order activity rose 116% sequentially, which points to backlog rebuilding in the fourth quarter.

Quality matters as much as size. Management said more than 80% of backlog is with customers that have strong balance sheets, and that the backlog covers permitted projects, not speculative ones. Less than one-third of the backlog sits in states facing any local pushback on data center development. Those details address the biggest risk the market sees in AI infrastructure suppliers: that customers cancel or delay orders if financing tightens or local opposition grows.

The customer profile is broad. Management said hyperscale customers have exposure across the country and that new customer relationships drove the acceleration in BASX orders. A diversified customer list reduces the risk that a single hyperscaler pulling back would derail growth. It also suggests BASX is winning share as data center operators look beyond their traditional cooling suppliers to meet demand.

For the stock, the backlog is the main reason the market tolerated the restatement. With $1.85 billion of firm orders, the company has more revenue already contracted than its entire 2025 sales. That gives investors confidence in 2027 even without formal guidance.

Guidance Raised to 72%–75% Growth

AAON raised its full-year outlook sharply. The company now expects 2026 net sales growth of 72% to 75%, up from 55% to 60%. That implies full-year sales of $2.48 billion to $2.524 billion. With nine-month sales of $1,842.1 million, the guidance implies fourth-quarter sales of $638 million to $682 million.

The other guidance lines improved too. Gross margin is now expected at about 26%, the top of the prior 25%–26% range. SG&A is expected at about 13% of sales, the low end of the prior 13%–14% range. Depreciation and amortization is expected at about $100 million, the top of the prior $95 million to $100 million range. Each change points to better operating leverage.

The fourth-quarter setup has two moving parts. Management expects the sales mix between AAON and BASX to be similar to the third quarter, which implies about 140% BASX growth for the full year. It expects fourth-quarter gross margin to dip slightly, because of fewer production days for holidays and year-end inventory counts, not inflation. BASX bookings in the fourth quarter are expected to match or exceed the fourth quarter of 2025.

The implied fourth-quarter range sits below the third quarter’s $707.4 million. That looks conservative. The company just beat consensus by $105 million on the back of faster capacity utilization, and the third quarter shows it can produce at a $700 million quarterly pace. Guidance that implies a sequential decline leaves room for another beat if production days are used efficiently and BASX output keeps climbing.

There is no formal 2027 guidance. Management said it expects stronger earnings, working capital improvements and lower capital spending to drive significantly stronger free cash flow in 2027. That qualitative signal, combined with BASX capacity above $2 billion and a $1.85 billion backlog, gives the market enough to build 2027 estimates well above 2026 levels.

Margins Turn the Corner

Margins were the biggest concern going into the report, and the quarter delivered progress. Gross margin was 26.7%, down from 27.8% a year earlier but up 60 basis points from the second quarter. It was the second straight quarter of sequential improvement. In the second quarter, gross margin was 24.3%, so the trend from 24.3% to 26.7% in two quarters shows the ramp is getting more efficient.

The year-over-year decline has a clear cause. A higher share of BASX revenue comes from newer, less mature facilities running at lower utilization, which carry more overhead per unit. Better pricing against costs and volume leverage partly offset that. As the newer plants fill up, the overhead spreads across more units and margins should rise. The second quarter had also been hit by outsourced components used to support accelerated growth and by inflationary cost pressures, and those effects eased in the third quarter.

Memphis is the key swing factor. The Memphis facility runs at about one-third of capacity. AAON Oklahoma carried $20.7 million of Memphis-related overhead in the third quarter, which is why that segment’s reported gross margin of 25.5% compares with 32.8% on an adjusted basis. Management plans an intentional, multi-quarter to multi-year ramp at Memphis. As utilization rises, that $20.7 million of overhead will be absorbed by revenue, and AAON Oklahoma’s margins will move toward the adjusted figure.

The long-term target is higher still. AAON Oklahoma’s adjusted gross margin of 32.8% was up 160 basis points sequentially. The company’s long-term goal for that business is a margin in the mid-to-high 30s, and management said it takes time to get there but expects movement in the right direction through 2027. Coil Products jumped from an 11.0% gross margin a year ago to 25.8%, mainly on pricing.

Margin recovery is the main lever for the upside target. If gross margin rises from 26% this year toward 28% to 30% in 2027 as Memphis and the newer BASX plants fill up, operating income would grow much faster than sales. Further gross margin improvement in 2027 is the clearest path to more value creation for shareholders, and the third quarter showed the trend has turned.

Free Cash Flow Turns Positive

The third quarter was AAON’s first free-cash-flow-positive quarter in two years. That milestone removes one of the main bear arguments. For most of 2024 and 2025, heavy capital spending on new capacity, combined with working capital needs from rapid growth, consumed more cash than the business generated. Investors worried the company would need more debt or equity to fund the ramp.

The nine-month numbers show the shift. Operating cash flow was a positive $146.9 million for the first nine months of 2026, against a use of $18.8 million a year earlier. Capital spending was $138.1 million over the same period, against $128.1 million a year earlier. The company did not disclose the exact third-quarter free cash flow, but positive free cash flow in the quarter means operating cash flow exceeded capital spending by a margin large enough to cover the first half’s gap.

Capital spending will drop. Management expects capex to step down meaningfully in 2027, after the heavy build-out of 2024 to 2026. With BASX capacity above $2 billion and Memphis at one-third utilization, the company has enough plant to grow for at least two more years without major new investment. Lower capex plus higher earnings plus better working capital is the combination management expects to drive significantly stronger free cash flow next year.

The balance sheet has improved alongside cash flow. Debt on the revolving credit facility stood at $386.7 million at September 30. Cash and equivalents were $3.7 million. The leverage ratio fell to 1.0 times from 1.8 times at the start of the year. That gives the company room to keep investing without stretching the balance sheet.

Capital returns are modest for now. AAON declared a $0.10 quarterly dividend and paid $24.6 million in dividends year to date. It made no open-market share repurchases in 2026, against $30.0 million in the same period of 2025, and repurchased $4.6 million related to its long-term incentive plan. The company has $70 million left under its buyback authorization. With free cash flow turning positive and leverage falling, buybacks could resume in 2027.

The Restatement and the Material Weakness

The quarter came with a significant governance issue. AAON self-identified accounting errors tied to revenue recognition and software subscription accounting. It restated its first- and second-quarter 2026 results and concluded that a material weakness existed in its internal control over financial reporting. It filed restated quarterly reports for both periods with the SEC.

The direction of the restatement matters. The corrections raised first-half revenue by $10.7 million and diluted EPS by $0.09, and lifted gross margin by 71 basis points. First-quarter net sales were restated to $492.5 million from $496.9 million, a decrease. Second-quarter net sales were restated to $642.1 million from $627.0 million, an increase. Management said the revisions are largely timing-related, meaning revenue shifted between periods rather than disappearing.

A material weakness is serious. It means the company’s controls failed to prevent or catch errors that could have been material to its financial statements. Auditors will scrutinize the fix, and the company must remediate the weakness before it can report effective internal controls again. Until then, every future quarterly report carries a higher risk of further corrections. CEO Matt Tobolski acknowledged the issue directly on the call and said the company takes it seriously.

The market discounted the issue on Tuesday for three reasons. The errors were self-identified, not uncovered by a regulator or short seller. They raised reported results instead of lowering them. And the operating beat was large enough to overwhelm the concern. A restatement that cut revenue would likely have sent the stock lower, beat or no beat.

The risk does not go away. Remediating a material weakness takes several quarters. If auditors find more errors, or if the restatement becomes the subject of litigation or regulatory inquiry, the stock could lose part of Tuesday’s gain quickly. Investors should treat the issue as a live risk factor through at least the fourth-quarter report, which will also include the planned resegmentation and recast historical results.

Valuation After the Re-Rating

Even after the rally, AAON trades well below its peak valuation. At $77.52 and about 83 million diluted shares, the company has a market value of about $6.4 billion. The stock reached $150.46 at its 52-week high, which put the market value near $12.5 billion. The two-day rally has recovered only a small part of that drawdown.

Earnings multiples look reasonable for the growth on offer. Annualizing the third quarter’s $0.83 EPS gives a run rate of $3.32 a share, which puts the stock at about 23 times run-rate earnings. Annualizing third-quarter EBITDA of $127.2 million gives about $509 million. With $386.7 million of debt and $3.7 million of cash, enterprise value is about $6.8 billion, or roughly 13 times run-rate EBITDA. For a company growing sales 84% with expanding margins, those multiples are modest.

A sum-of-parts view shows where the value sits. The AAON-branded business is a mature, high-margin HVAC franchise with a long-term gross margin target in the mid-to-high 30s. Peers in commercial HVAC trade at premium multiples for that kind of business. BASX is a high-growth data center supplier with lower current margins but more than $2 billion of capacity and a $1.36 billion backlog. Valuing the two separately, with a premium multiple on the AAON-branded business and a growth multiple on BASX, supports a value near $100 a share on 2027 earnings.

The upside target for this forecast is $100. It sits 29% above Tuesday’s $77.52 close and is a round level the market can see clearly. It assumes 2027 sales grow at least 25% from the 2026 base of about $2.5 billion, gross margin rises toward 28%, and free cash flow improves as capex falls. None of those assumptions require the stock to return to its 52-week high. They only require the business to keep doing what the third quarter showed.

The discount to the high reflects the risks. The material weakness, the margin dilution from the BASX ramp, and concentration in data center spending all justify a lower multiple than the stock carried at its peak. A return to $150 would need flawless execution and a clean resolution of the control issues. The $100 target needs steady progress.

Data Center Capex and the AI Spending Cycle

AAON’s growth depends on AI data center spending, and that spending is still rising. Nvidia, the bellwether for AI infrastructure, guided to $108 billion of revenue for its October quarter and grew data center revenue 117% in its last reported quarter. Hyperscalers and AI labs have committed hundreds of billions of dollars to new data center capacity through 2027 and beyond. Every new facility needs power, networking and cooling, and cooling is where BASX competes.

Liquid cooling is becoming standard for AI racks. Nvidia’s latest platforms pack so much compute into each rack that air cooling cannot keep up. Liquid cooling systems circulate coolant directly to chips or through rear-door heat exchangers, and they require custom engineering for each facility. BASX’s 255.6% liquid cooling growth shows it is winning a meaningful share of that market.

The sector has its risks. On Tuesday, Nvidia fell 6.5% amid a board investigation into its CEO, and concern about circular financing in AI infrastructure, with suppliers investing in customers, has grown. If AI spending slows, data center suppliers would be among the first to feel it. AAON’s backlog quality, with more than 80% of orders from customers with strong balance sheets and all on permitted projects, offers some protection, but it would not be immune to a broad slowdown.

Local politics add another risk. Several states have seen pushback against data center development over power use, water consumption and land. Management said less than one-third of its backlog sits in states with any data center pressure. That limits but does not eliminate the risk of project delays.

The macro backdrop is also a headwind for high-multiple growth stocks. The October CPI came in hot on Tuesday, with core at 0.3% for a third month. Fed odds for a 50bp December hike rose to 15%, and the 2-year Treasury jumped 19 basis points to 4.736%. Higher rates raise the discount rate for future earnings and raise financing costs for data center developers. AAON rallied 23% despite that backdrop, which shows how much the company-specific news mattered.

Chart: The Gap From $62.87 Is the Key Support

The technical picture changed sharply in two sessions. Before Monday, AAON traded in a bearish daily trend, with the stock below its major moving averages after the long decline from $150.46. Monday’s 9.93% gain to $62.87 put the close above the hourly 20-period EMA at $60.17 and the 50-period EMA at $62.56, but still below the hourly 200-period EMA at $71.68. Tuesday’s 23% gap blew through that 200-period level and put the stock in breakout territory.

The gap is the main support. Tuesday’s open gapped from Monday’s $62.87 close to the low $70s. Gaps on big earnings beats often act as support, because buyers who missed the move tend to step in on any pullback toward the gap. The first support sits at $71.76, Monday’s after-hours price and close to the hourly 200-period EMA at $71.68. Below that, $62.87, Monday’s close, marks the bottom of the gap. A close below $62.87 would mean the market had fully rejected the earnings reaction.

Resistance is spread out above. The first level is $80, a round number just above Tuesday’s $77.70 high. Above that, $90 marks a level where the stock traded earlier in its decline. The $100 upside target is the major round number and the first level that would mark a real recovery of the drawdown. The 52-week high at $150.46 is far above that.

Momentum is extreme in the short term. A 35.5% two-day gain usually pushes momentum indicators into overbought territory. That often leads to consolidation as short-term traders take profits. A pullback toward $70 to $72 would be normal after a move this size and would not break the bullish setup. A pullback that holds above $71.68 would set a higher low and build a base for the next leg.

Volume will confirm the move. Earnings gaps that hold on high volume tend to mark lasting trend changes. If the stock holds above $71.68 through the rest of the week on above-average volume, the gap is likely to mark the bottom of the decline from $150.46. A low-volume drift back toward $62.87 would weaken the case.

Scenarios Into the Fourth Quarter

Three paths stand out over the next few months. In the bull path, BASX order momentum continues, with fourth-quarter bookings above the prior year as guided. The company beats the implied fourth-quarter range of $638 million to $682 million, helped by efficient production days and continued BASX output growth. Gross margin holds near 26% despite fewer production days. The restatement stays contained and remediation progresses. In that case the stock builds on the gap and climbs through $80 and $90 toward the $100 upside target by the time of the fourth-quarter report.

In the base path, AAON delivers the fourth-quarter guide without a big beat. The stock consolidates between $70 and $85 as the market digests the re-rating and waits for 2027 guidance with the fourth-quarter report. The resegmentation into AAON and BASX brands gives investors cleaner data to value the two businesses separately, which could support a higher multiple once the new reporting is in place.

In the bear path, the material weakness widens into a bigger problem, with more errors found or a regulatory inquiry. AI data center spending slows on financing concerns, or Nvidia’s governance issues spill into the broader sector. Higher rates hit growth multiples. The stock fills the gap back toward $62.87 and possibly below.

The odds favor the base and bull paths. The backlog, the raised guidance, the margin trend and the turn to positive free cash flow are all concrete. The restatement is the main wildcard, and it is a real one. But the company has given investors enough evidence to support a higher valuation than the stock carried on Friday.

AAON Verdict: Bullish Above $62.87, Upside Target $100

AAON is bullish. The stock jumped 23.3% to $77.52 on Tuesday after a 9.93% gain on Monday, a two-day move of 35.5% from Friday’s $57.19 close, while the S&P 500 fell 0.71%. Third-quarter net sales rose 84.1% to a record $707.4 million, $105 million above consensus. EPS rose 124.3% to $0.83 against $0.56 expected. Operating income more than doubled to $100.0 million, and adjusted EBITDA margin rose to 18.0%. BASX-branded sales jumped 218.3% to $397.2 million, or 56% of the total, with liquid cooling up 255.6% to $165.5 million. Total backlog stands at $1.85 billion, up 40.5%. The company raised 2026 sales growth guidance to 72%–75% from 55%–60%, implying $2.48 billion to $2.524 billion. Gross margin improved 60 basis points sequentially to 26.7%. The third quarter was the first free-cash-flow-positive quarter in two years, and leverage fell to 1.0 times from 1.8 times. The risks are real: a restatement of first-half results, a material weakness in internal controls, Memphis running at one-third of capacity, dependence on AI data center spending, and a hawkish Fed after the hot CPI. Even so, at about 23 times run-rate EPS and 48.5% below its $150.46 high, the stock has room to keep re-rating. Holding above the $71.68–$71.76 gap support and clearing $80 and $90 would carry AAON to the $100 upside target. A close below Monday’s $62.87 close would mean the gap had failed and would invalidate the bullish view.

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