The AI data center boom may look like a crowded investment theme by now. Previously, we discussed companies that build infrastructure, as well as the engineering firms that supply the power, cooling, and electrical systems necessary to keep these facilities operational.
But investors may be missing the next link in the value chain: once data centers are built, what enables AI infrastructure to move data reliably at scale?
The spending wave suggests this opportunity is still in its early stages. India has 208 data center projects worth around ₹12 lakh crore in the pipeline, according to the Centre for Monitoring Indian Economy. Of this, over 60% of announcements are coming in FY26 alone.
Installed capacity has already jumped 3X to 1.5 GW from about 375 MW in 2020, as per the Government of India. Global hyperscalers continue to invest billions into AI infrastructure to meet rising computing demand. Yet, building a data center is only one part of the story. As investments rise, the opportunity is spreading across the broader data center value chain.
They also require high-speed connectivity, fibre networks, and cooling and utility systems to keep data moving and data centers operating without disruption. It is on these lines that we examine two companies positioned in the supporting layer of the data center value chain.
#1 Aeroflex Industries
Aeroflex Industries provides advanced thermal management technologies and liquid cooling solutions to the rapidly growing data center and AI market. Due to the limitations of traditional air cooling, liquid cooling has emerged as a preferred solution for next-generation data center infrastructure.
To serve this sector, Aeroflex makes a range of specialized products, including customized skid assemblies for liquid cooling, hose assemblies, and connectors and fittings. Skid assemblies are the main product of Aeroflex’s data center offerings.
How an Exclusive B2B Partnership Anchors Aeroflex’s Commercial Pipeline
Aeroflex does not sell these assemblies directly to the data centers. Instead, it has an exclusive agreement with the Indian subsidiary of a major US-headquartered company. Aeroflex supplies these skids to this principal partner.
This partner then uses it to create complete liquid-cooling solutions for end customers building data centers. Currently, 100% of Aeroflex’s skid assemblies are supplied to the domestic market, though the company plans to eventually expand this into international markets.
The $3 billion TAM
The financial incentive for Aeroflex to serve data centers is massive. Management estimates that the liquid cooling system accounts for 10%-11% of a data center’s total cost. The Total Addressable Market (TAM) for data center liquid cooling is currently valued at around $3 billion and is projected to increase to approximately $21 billion over the next 5-6 years.
To capture a larger share of this TAM, Aeroflex recently showcased its portfolio of advanced flexible flow solutions at the Data Center World Exhibition in Washington. This strategic move successfully generated international leads that the company is currently pursuing to expand its data center business globally.
Why a $2.5 times Capacity Expansion Underpins the FY27 Growth Target
In addition, the company is scaling its skid assembly capacity. It plans to expand its annual capacity from 6,000 units to 15,000 units within the next two quarters. By March 2027, Aeroflex targets to reach a 60% to 70% utilization rate of this expanded capacity. Management expects the skid assemblies segment to contribute around 20% of revenue in FY27.
The company aims to grow its overall business by approximately 35% in FY27, primarily driven by scaling up the new skid assemblies business. The FY26 performance also showed financial momentum.
Evaluating Aeroflex’s Operational Levers
Revenues grew 17% year-on-year to ₹443 crore. Skid assemblies accounted for just 5% of sales in FY26. EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) rose by 26% to ₹100 crore, with margins at 23%. Net profit, however, gained just around 6% to ₹53 crore.
Evaluating the ₹40 Crore Tax Demand and Execution Overhangs
The risks include an ongoing tax demand of approximately ₹40 crore, representing 75% of FY26 net profit. The company aims to drive revenue growth through its skid assembly business, which is currently facing supply and execution bottlenecks. Additionally, its reliance on a single client exposes it to the risk of ‘high client concentration.
#2 Sterlite Technologies
Sterlite Technologies, a Vedanta Group company, is heavily exposed to the data center market. In FY26, the Enterprise and Data Center segment accounted for 19% of Sterlite’s (STL) revenue. Now, driven by investments in AI data centers and strong pipeline visibility, STL expects this segment’s contribution to surge to 30% of total revenue in FY27.
Backlog Visibility: How a ₹10,000-Crore US Order Anchors Revenues Through FY29
STL experienced strong growth in its overall order book during FY26, with order inflows more than doubling to ₹7,687 crore (a 109% year-on-year increase). In addition, it recently won a ₹ 10,000-crore order from a US-based company, to be executed by FY29. This order book (₹17,786 crore) provides strong revenue visibility through FY29.
Geographic Catalysts: Riding the North American Optical Fiber Expansion Wave
This strong momentum was significantly bolstered by large-scale data center project wins, predominantly in North America. This region has emerged as a hub for AI-based data center expansion, creating significant opportunities for fiber companies. According to Black Box, over 390 active projects are currently underway in this region.
The Neuralis Suite: Deepening Local Manufacturing Moats in South Carolina
To tap into the fast-growing data center opportunity, STL launched a set of products in FY26 to meet AI-led infrastructure needs. Its portfolio, Neuralis, launched at Data Center World 2026, targets both internal AI connectivity and high-speed interconnects between data centers.
STL is also backing the portfolio with local manufacturing in South Carolina to deepen its presence among US hyperscalers. Beyond Neuralis, STL launched India’s first Hollow Core Fiber, in which light travels through air rather than silica. This helps reduce latency and meet the ultra-high-bandwidth needs of hyperscale networks.
Latency Architecture: Launching India’s First Hollow Core and Low-Loss G.654.E Fibers
The company also secured its first commercial order for G.654.E fibre, designed for 50% larger core area and 30% lower signal loss. In addition, STL introduced Multi-Core Fibre, which delivers higher capacity within the same footprint, and expanded its high-density IBR cable portfolio to support dense data center deployments.
The Rack-Density Shift: Copper Physical Limits vs. High-Capacity Multi-Core Fiber
These innovations aim to meet structural tailwinds in the data center market. According to Sterlite, 40% of the global growth in optical cable demand will come directly from data centers. This is because traditional copper connectivity is reaching its physical limits, making optical fiber completely essential.
Demand Dynamics: Shifting from Copper to Core
This is triggering a strong need for fiber per rack. While the traditional cloud era required 500 fibers per switch rack, future 144-288-GPU AI nodes will require 12,000-16,000 fibers. Financial momentum has picked up in FY26.
Financial Turnaround: Analyzing the FY26 Operational Shift to Positive Net Profit
Revenues grew 19% year-on-year to ₹4,745 crore. The Enterprise and Data Center segment accounted for 19% of sales in FY26. EBITDA rose by 39% to ₹628 crore, with margins at 13.2%. Net profit, however, turned positive to ₹56 crore from a loss of ₹123 crore in FY25.
Looking ahead, the company targets an EBITDA margin of 20% by Q4FY27, driven by a better product mix and economies of scale. STL aims to strengthen its balance sheet by reducing its Net Debt-to-EBITDA ratio to below 1.2x in FY27, down from the current 1.3x. However, major red flags persist.
The $100-Million Prysmian and Attach Rate Moderation Overhang
STL faces a substantial $100 million liability arising from ongoing litigation involving Prysmian cables. The company filed an appeal in September 2025 and is currently awaiting a decision from a three-judge bench. Also, STL’s optical connectivity attach rate declined sharply from 22% in FY25 to 15% in FY26.
Management attributed this to product mix and project timing, though it remains a noticeable short-term moderation.
Evaluating Capital Efficiency: Premium Valuations vs Median Multiple
Aeroflex stands out with strong Return on Capital Employed (ROCE) and Return on Equity (ROE). Sterlite Tech’s return ratios are moderate, as its business incurred losses in FY24 and FY25. Furthermore, its financial profile has also been quite volatile.
In terms of valuations, following a recent sharp re-rating, both Aeroflex and Sterlite are trading at a premium relative to both the industry and 3-Year historical median. Sterlite valution, in particular, is highly elevated, with an extremely narrow margin of safety.
| Peer Comparison (X) | |||||
| Price-to-Earnings Multiple | |||||
| Company | Current | 3Y Median | Industry Median | ROCE (%) | ROE (%) |
| Aeroflex | 98.4 | 49.1 | 22.1 | 18.8 | 14.1 |
| Sterlite | 524 | 36.0 | 62 | 7.7 | 2.2 |
India’s AI-led data center buildout is creating opportunities for companies supplying the infrastructure behind this shift. Aeroflex and Sterlite Technologies are positioning themselves to benefit through liquid cooling, fibre connectivity, and hyperscale data center solutions.
However, despite strong growth visibility and improving financials, elevated valuations and execution risks leave limited room for error. Meanwhile, following a sharp run-up, it would be beneficial to keep these on your watchlist.
Disclaimer
Note: Throughout this article, we have relied on data from http://www.Screener.in and the company’s investor presentation. Only in cases where the data were unavailable have we used an alternative, widely accepted source of information.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.
About the Author: Madhvendra has been deeply immersed in the equity markets for over seven years, combining his passion for investing with his expertise in financial writing. With a knack for simplifying complex concepts, he enjoys sharing his honest perspectives on startups, listed Indian companies, and macroeconomic trends.
A dedicated reader and storyteller, Madhvendra thrives on uncovering insights that inspire his audience to deepen their understanding of the financial world.
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