How Do Data Center Chillers Work, and Does AI Need Them?

On January 6, Nvidia CEO Jensen Huang told a Las Vegas crowd that "no water chillers are necessary for data centers" running his newest chips. Shares of cooling companies fell the same day.

Ten months later, on November 11, Modine opened a factory in Texas to build chillers for data centers, including high-density AI sites. One of these moves looks wrong. Neither is, and the reason explains how data center cooling actually works.

How do data center chillers work?

A chiller works like a large refrigerator for water. It pulls heat out of the water that cools the building, then pushes that heat outdoors.

Inside a classic data center, cold water flows through coils in big air handlers. Hot air from the servers passes over the coils and warms the water. Pumps send that warm water back to the chiller. SemiAnalysis, in its guide to data center cooling, describes the chiller as running "a refrigeration cycle," which it calls an energy-intensive process.

A refrigerant inside the chiller absorbs the heat from the water. The heat then leaves the building, usually through a cooling tower or a dry cooler. Here is the full trip:

How heat leaves a data center
Step	What happens	Equipment
1. At the chip	Heat moves into air, or into liquid in a metal plate on the chip	Fans, or direct-to-chip cold plates
2. In the room	That heat moves into the building's water loop	Air handlers or coolant distribution units (CDUs)
3. At the plant	The water is cooled further if needed	Chiller, or a bypass when outside air is cold enough
4. Outdoors	Heat is released to the air	Cooling tower (uses water) or dry cooler (doesn't)

Step three is the only optional one. Heat always has to reach step four.

Cooling towers vs dry coolers

A cooling tower releases heat by letting some water evaporate. That works well, but SemiAnalysis notes the water use is "substantial." A dry cooler is a big radiator with fans. It uses no water, but it can only cool things down to near the outdoor air temperature.

Why do chillers use so much power?

Chillers run compressors, and compressors are hungry. SemiAnalysis estimates cooling takes 60% to 80% of a data center's power outside the computers themselves.

Chillers lead that list, followed by fans and pumps. That's why operators look for ways to run them less. One common trick is free cooling. When the outdoor air is cold enough, a bypass loop sends water around the chiller's refrigerant. The outdoor equipment does the work alone. The compressor rests.

What changes with liquid-cooled AI racks?

AI racks pipe liquid straight to the hottest chips. Warmer liquid can still cool those chips, and warmer liquid can be cooled outdoors without a chiller.

In direct-to-chip cooling, a liquid flows through a metal plate pressed against each processor. A coolant distribution unit, or CDU, swaps that heat into the building's water. SemiAnalysis says a CDU is a heat exchanger with pumps and controls, typically sized above 1 megawatt.

Nvidia's June blog post on liquid cooling has the numbers. Coolant enters the rack at 45°C, about 113°F, and leaves at roughly 55°C. That outgoing liquid is warm enough to shed its heat into outdoor air on many days. In favorable climates, Nvidia says, that allows "chiller-less operation with dry coolers." The same post cites roughly 2.6 million gallons of water per megawatt per year for systems built on cooling towers. Dry coolers avoid that.

So does AI still need chillers?

Sometimes. Nvidia's own cooling director said chillers may still be needed for a small share of the year in some climates.

Ali Heydari directs data center cooling and infrastructure at Nvidia. In the June post, he described the design as needing no evaporative cooling "outside of maybe 1% of the year when we might need chillers in some climates." That's a careful claim. It is narrower than "no chillers are necessary," and it still means the building may need a chiller on its hottest days.

The air-cooled part of an AI hall

Not everything in an AI hall is liquid-cooled. Schneider Electric published a reference design for a Vera Rubin hall with 64 liquid-cooled racks at 227 kW each and 34 air-cooled networking racks. Its air loop uses chillers, with free cooling, to deliver 68°F water to large fan walls.

We ran the numbers from that design. The liquid racks send 4% of their heat into the air, Schneider says. Add the networking racks and about 9.5% of the hall's heat still rides the chilled-water air loop. That share is small, but it is not zero.

Wall Street noticed the gap in January. NBC News reported that Citigroup analyst Andrew Kaplowitz called the cooling stock sell-off "overdone." He said Rubin "still requires liquid cooling capabilities." Johnson Controls fell 6.2% that day, Modine more than 7.4% and Trane 4%.

Now read Modine's November announcement again. Its new plant makes 2MW and 3MW chillers "with free cooling". That means machines built to sit idle when the weather allows. That fits warm-water AI racks. The chiller becomes a backup for hot days rather than an engine that runs all year.

What warm water means for chiller makers

The risk for chiller makers is not that AI kills chillers. It's that AI shrinks how many hours they run, which can change how many are ordered per megawatt. Nvidia's numbers come from Nvidia. We haven't seen independent measurements from large Rubin sites.

The counterpoint is demand. The same AI buildout is adding megawatts so fast that even a smaller chiller share can mean more units. LG, for example, named a partner for 5 gigawatts of AI data center cooling. Which effect wins will show up in orders, not keynotes.

What happens at Modine next?

Watch Modine's Texas ramp. It started with one line and one shift, and it targets four 2MW chiller lines by the end of its fiscal year.

Next milestone

Modine's Grand Prairie, Texas plant: four operating 2MW chiller lines by the end of the current fiscal year. Modine says that depends on equipment commissioning and workforce readiness.

A chiller refrigerates water when the outdoors can't do the job alone. Warm-water AI racks hand more of that job to the outdoors. The chiller stays, but it may spend more of its life waiting for a heat wave. We covered the plant's first weeks in Modine's chiller plant story.

How Do Data Center Chillers Work, and Does AI Need Them?