CITIC SEC: Technological iteration drives liquid cooling penetration, bullish on domestic manufacturers breaking through.

CITIC SEC released a research report stating that since 2025, with the significant increase in AI server power consumption and chip power, liquid cooling solutions are gradually becoming the mainstream technology path for energy saving and consumption reduction in data centers due to higher heat dissipation efficiency and lower PUE. The company predicts that with the accelerated penetration of liquid cooling and technology upgrades leading to an increase in ASP, the global liquid cooling market space will reach $21.8 billion by 2027. In terms of industry competition, the current liquid cooling industry chain is dominated by Taiwanese manufacturers. With chip manufacturers gradually participating in the liquid cooling supply chain selection, domestic manufacturers are facing a major opportunity. It is optimistic about domestic manufacturers benefiting from the surge in demand for AIDC liquid cooling and recommends manufacturers with the mass production capacity of core liquid cooling components and overall solutions. Key points from CITIC SEC are as follows: Cooling systems are essential for overcoming the increase in chip power consumption, and liquid cooling is more efficient than air cooling. From the perspective of physical laws, chip heating includes dynamic power consumption and static power. Under Dennard's scaling law, as transistors shrink, dynamic power consumption remains stable, but the leakage current effect is significantly amplified, leading to an increase in static power that increases the power consumption of higher performance chips. To improve chip longevity, an external cooling system is needed to maintain the chip's normal operating conditions. Overall, chip cooling technologies can be divided into air cooling and liquid cooling, with air cooling being more mature but having relatively low heat dissipation efficiency, while liquid cooling, categorized as emerging technology, can be further divided into cold plate and immersion types, offering higher cooling efficiency. As AIDC power density continues to rise, liquid cooling breaks through the air cooling heat dissipation bottleneck. 1) Chip level: With the continuous increase in computing power, CPU/GPU single chip TDP (thermal design power) continues to grow. According to Nvidia's official website, liquid cooling technology can reduce annual energy consumption by 25% and reduce rack space requirements by 75%; 2) Cabinet level: With the increase in computing density, according to Vertiv, single cabinet power consumption gradually increases to over 300kW, indicating air cooling technology is unable to meet the cabinet's heat dissipation needs; 3) Data center level: Liquid cooling technology can effectively improve the PUE level and reduce the overall energy consumption of AIDC. According to ZTE Corporation's calculations, for example, with a 10MW scale data center, comparing liquid cooling solution (PUE 1.15) and chilled water solution (PUE 1.35), it is estimated that the additional infrastructure initial investment can be recovered in around 2.2 years. Market Space: Liquid cooling penetration rate + ASP increase, the market space is expected to reach $21.8 billion by 2027. 1) Technology Transition: Comparing air cooling and liquid cooling, the main difference lies in the secondary cooling system. According to Nvidia, TrendForce, and other data, the value of the cooling system of a single cabinet under air cooling technology is approximately $20,000, while under liquid cooling technology, it is around $82,000, significantly increasing the value of liquid cooling; 2) Technological Iteration: Looking at the development of liquid cooling technology, the current cold plate technology faces certain performance bottlenecks. In the future, microchannel cold plates and two-phase cold plates will further enhance heat dissipation capabilities, driving an increase in the value of liquid cooling. In the long term, chip-level microfluidic cooling is expected to become a revolutionary technology; 3) Market Space: The company estimates the global cabinet shipments for 2027 based on the number of AI chips and the number of cabinets, with NVL72 single cabinet having 72 chips as the benchmark, estimating the global cabinet shipments of around 246,000 units in 2027. Assuming a 75% penetration rate of AIDC liquid cooling by 2027 and a slight increase in liquid cooling value to $118,000 per unit, the company predicts that the corresponding market space will reach $21.8 billion with high growth rates. Competitive Landscape: Chip manufacturers are gradually participating in the liquid cooling supply chain selection, providing significant opportunities for domestic manufacturers. 1) Business Logic: According to analyses by IDTechEx and TrendForce, server manufacturers are more likely to control the decision-making of the liquid cooling industry chain. Taking the cold plate link as an example, currently, Taiwanese manufacturers dominate the market. With the iteration of liquid cooling technology, chip manufacturers will directly participate in defining liquid cooling, potentially opening up business procurement relationships, which significantly benefits domestic liquid cooling manufacturers; 2) Core Components: Liquid cooling technology includes CDUs, cold plates, manifolds, quick connectors, coolant, and other components. Currently, Taiwanese manufacturers dominate the high-end market, while domestic manufacturers are gradually focusing on liquid cooling component segments; 3) Competitive Trends: Looking at the development of liquid cooling technologies from Veidertec, companies continue to make acquisitions to enhance their technical capabilities and cooperate with companies like Nvidia to design overall AIDC solutions, thus enhancing their position in the industry chain. Currently, domestic manufacturers are gradually introducing Nvidia, Intel, and other customers' ecosystems, optimistic about domestic manufacturers gradually acquiring the full industry chain manufacturing capabilities and may provide comprehensive liquid cooling solutions. Risk Factors: AI industry development falls below expectations; risks of domestic and foreign internet giants' capital expenditures not meeting expectations; risks of domestic and foreign companies' liquid cooling technology progress not meeting expectations; intensified competition in the liquid cooling industry; risks of technological iteration; risks of liquid cooling technology costs not declining as expected; risks of geopolitical and overseas policy uncertainties.