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Equipment finance confidence jumps to 20-month high as demand doubles
Theme 1: Equipment Finance Momentum on Surging Industry Confidence and Capital Expenditure Demand
The equipment finance sector is experiencing a fundamental shift in business sentiment and underlying demand dynamics. The 10% month-over-month increase in the ELFA confidence index represents the most substantial improvement in industry outlook in nearly a year, driven by concrete expectations for increased capital spending.
On the demand side, the doubling of executives expecting increased lease and loan demand from 20.8% to 40% signals a broad-based acceleration in business investment plans. Two-thirds of middle-market manufacturers plan to increase equipment investment in 2026, creating sustained customer demand across the sector. Real equipment and software investment posted its strongest two-quarter performance in at least 20 years during the first half of 2025, with 2026 growth projected at 6.2%, which remains strong by historical standards.
On the supply side, credit conditions are improving significantly. 32% of respondents expect greater access to capital to fund equipment acquisitions, up from 25% in December, following three Federal Reserve rate cuts in Q4 2025 that reduced borrowing costs for both lenders and end-users. This creates a favorable environment for equipment finance companies to expand lending while maintaining healthy margins.
Stocks that would benefit:
EFX: Element Fleet Management Corp - Leading fleet management company with a comprehensive equipment financing platform that directly benefits from the surging confidence index as businesses accelerate capital expenditure programs. Element's proprietary digital platform enables it to efficiently process the increased volume of equipment lease applications while its scale allows it to offer competitive rates in the improved credit environment. The company is particularly well-positioned to capitalize on the manufacturing sector's planned equipment investments, with specialized financing solutions for industrial equipment that align perfectly with the 6.2% projected growth in equipment investment for 2026. Read More →
ALLY: Ally Financial Inc - As a diversified financial services company with significant equipment finance operations, Ally stands to benefit substantially from the improving credit conditions and doubled demand for equipment leases. The company's strategic simplification to focus on core auto finance and digital banking has transformed it into a more efficient lender, enabling margin expansion to 3.45-3.5% NIM as interest rates decline. This positions Ally to capitalize on the equipment finance opportunity while maintaining strong credit quality, with retail auto net charge-offs trending toward the low end of guidance at 2%, reflecting the effectiveness of their 2023 underwriting tightening and enhanced digital servicing capabilities. Read More →
TCBI: Texas Capital Bancshares - This commercial bank's specialized equipment finance division is strategically positioned to benefit from the dramatic improvement in the ELFA confidence index. Texas Capital's equipment finance operations focus on middle-market businesses—precisely the segment where two-thirds of manufacturers plan to increase equipment investment in 2026. The bank's strong balance sheet, with approximately $1.6 billion in liquidity and a conservative debt-to-equity ratio of 0.25, provides ample capacity to expand equipment lending as demand accelerates. Texas Capital's regional expertise in the economically resilient Texas market further enhances its ability to capitalize on the equipment finance opportunity while maintaining disciplined credit standards. Read More →
Theme 2: HVAC Equipment Surge on Data Center Cooling Demand and Commercial Market Strength
The HVAC equipment sector is experiencing a fundamental demand shift driven by the explosive growth in data center infrastructure. Data center electricity consumption is projected to rise from 147 TWh in 2023 to over 600 TWh by 2030, with cooling representing approximately 40% of data center energy use. This creates massive demand for specialized HVAC equipment designed for high-density computing environments.
On the demand side, data center cooling now represents 22.48% of commercial HVAC equipment revenue and is projected to grow at a 14.56% compound annual growth rate from 2026 to 2031. Major manufacturers are seeing this translate to significant revenue shares, with data center cooling contracts representing 18% of Johnson Controls' commercial HVAC sales and growing rapidly.
On the supply side, manufacturers are making substantial capital commitments to meet this demand. Carrier invested in ZutaCore in February 2025 to scale direct-to-chip liquid cooling systems, while Daikin committed $300 million to expand Texas production of VRF systems and heat pumps. The Inflation Reduction Act is also allocating substantial federal funding for deep energy retrofits across over 30,000 commercial buildings in 2025, accelerating adoption of high-efficiency HVAC systems.
Stocks that would benefit:
CARR: Carrier Global Corporation - At the forefront of the data center cooling revolution, Carrier is experiencing unprecedented commercial HVAC growth with Q3 data center sales surging 28% year-over-year, putting the company on track to double its data center revenue to $1 billion in 2025. The company's strategic investment in ZutaCore for direct-to-chip liquid cooling systems positions it to capture high-margin opportunities in the most advanced cooling applications for AI infrastructure. Despite facing cyclical weakness in residential markets (-30% in Q3), Carrier's aggressive operational actions—eliminating approximately 3,000 indirect positions and capturing over $200 million in Viessmann synergies—demonstrate its ability to protect profitability while capitalizing on the structural growth in data center cooling demand. Read More →
JCI: Johnson Controls International - Johnson Controls is leveraging its comprehensive building management expertise to capture an increasing share of the data center cooling market, with these contracts now representing 18% of its commercial HVAC sales and growing rapidly. The company's integrated approach combining HVAC equipment with advanced controls and monitoring systems creates a compelling value proposition for data center operators seeking to optimize energy efficiency while ensuring reliability. Johnson Controls' strong presence in the commercial building sector also positions it to benefit from the Inflation Reduction Act's funding for energy retrofits across 30,000 commercial buildings, creating a dual growth driver alongside the data center opportunity. Read More →
LII: Lennox International - Lennox has successfully navigated the R-454B refrigerant transition, with approximately 90% of refrigerant-based product sales now using the new low-GWP formulation, positioning the company to capture market share as competitors struggle with execution issues. This regulatory compliance advantage, combined with the company's strategic investments during the cyclical downturn—including joint ventures with Samsung for ductless/VRF systems and Ariston for heat pump water heating—creates multiple growth vectors aligned with the commercial HVAC market's expansion. Lennox's direct-to-contractor distribution model, representing approximately 75% of its Home Comfort Solutions revenue, provides a durable competitive advantage in delivering specialized cooling solutions to the growing data center market while maintaining industry-leading margins of 22.2% in Home Comfort Solutions and 26.1% in Building Climate Solutions. Read More →
Theme 3: Titanium Dioxide Pigment Recovery on Producer Price Increases and Cost Support
The titanium dioxide pigment market is experiencing a fundamental shift in pricing dynamics driven by both supply-side cost pressures and improved pricing discipline across producers. This represents a departure from the soft pricing environment that characterized earlier periods.
On the supply side, rising sulfuric acid costs are creating strong cost-floor support for sulfate-route producers, which represent a significant portion of global production capacity. The sulfuric acid market remains strong due to low inventories and balanced supply-demand conditions, reinforcing cost-side support and limiting producers' ability to offer discounts. Planned maintenance shutdowns are creating additional short-term supply constraints that support pricing into February and beyond.
On the demand side, the paint and coatings industry continues to drive robust consumption through seasonal restocking patterns, while polymer manufacturing maintains strong and steady demand. US market demand remained strong through mid-January 2026, with producers keeping operating rates aligned to confirmed customer orders to avoid oversupply while maintaining pricing discipline.
Stocks that would benefit:
KRO: Kronos Worldwide Inc - As the company leading the industry's pricing recovery with immediate increases of 150 euros per metric ton in western Europe and $120 per metric ton in eastern Europe, Kronos is strategically positioned to benefit from the fundamental shift in market dynamics. Despite experiencing a severe cyclical downturn with Q3 2025 segment losses of $15.3 million, the company's decisive counter-cyclical moves—including utilization cuts, workforce reductions, and inventory destocking—have positioned it to capture pricing power as market conditions improve. Kronos' July 2024 Louisiana Pigment Company acquisition enhances its North American presence, creating operational synergies that will amplify margin expansion as pricing recovers and utilization rates normalize from the current 85% level. Read More →
CC: Chemours Company - As a major titanium dioxide producer with significant sulfate-route production capacity, Chemours stands to benefit directly from the rising sulfuric acid costs that are creating a strong price floor across the industry. The company's Titanium Technologies segment is poised for recovery after experiencing a 68% EBITDA collapse in Q3 due to macro weakness and destocking, with management anticipating restocking to begin in Q1 2026. Chemours' $140 million TT Transformation Plan has created a leaner cost structure that will drive significant operating leverage as volumes recover and prices increase, while the August 2025 New Jersey PFAS settlement has dramatically reduced legacy liability concerns, removing a major overhang on the company's equity value and allowing investors to focus on the titanium dioxide recovery story. Read More →
VHI: Valhi Inc - This holding company offers unique exposure to the titanium dioxide pricing recovery through its Chemicals segment, which is currently navigating the cyclical downturn with Q3 2025 operating income swinging to a $15.9 million loss from a $42.6 million profit a year prior. Valhi's diversified structure provides crucial downside protection, with its Component Products segment growing operating income 45% year-over-year through Q3 2025 and Real Estate Management generating higher operating income despite lower land sales. The company's financial stability remains intact with modest leverage (0.49 debt-to-equity) and $232.8 million in cash, providing flexibility to navigate the downturn while positioning to benefit from industry consolidation as significant capacity reductions by Chinese and European producers in 2025 set the stage for improved pricing power in 2026. Read More →
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