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Profit from the Breakthrough in Liquid-Cooled Computers

When Ray Harroun came out of retirement in 1911 to race in the first Indianapolis 500, he made one request: He wanted to ditch the ride-along mechanic that the rules required in order to save weight and give his yellow Marmon Wasp a racing edge.

The Indy organizers balked: The mechanic provided a big measure of safety, they said, acting as a spotter who could watch for cars behind or on either side of the racer.

Harroun bolted a mirror to a bracket on his dashboard, was permitted to race without a mechanic, and won the inaugural Indy race – leading 88 of the 200 laps, the most of anyone.

And the rear-view mirror that Harroun used to gain an advantage in a car race? It's now standard safety equipment on motor vehicles of all types – meaning it occupies the ranks of devices or substances that were designed to solve one problem, but were later found to solve others just as well.

Today I'm going to share a similar story, and show you how a fluid developed to keep aircraft parts clean or suppress fires is being used to solve one of the biggest computer problems we face today.

And I'm even going to show you how to make money from it.

In the Age of the Internet, the invention of a high-powered computer known as a "server" is one of the things that have allowed our tech-oriented society to survive and thrive.

In a nod to our country's agrarian roots, these servers are packed into huge buildings, organized in neat rows just like the corn on a Midwest farm.

But that's where the agrarian similarity ends.

You see, as electronic circuits keep getting smaller, they make each server used for the Web and private computer networks much more powerful. But technology is just like finance in that there's no free lunch: This escalation in power and reduction in size creates a big problem.

I'm talking about heat.

These servers run very hot. And that, in turn, increases the odds of a server "meltdown," meaning the box just gets fried and becomes useless.

Right now, server farms rely on two main cooling sources.

The first is high-speed electric fans that blow air over the devices.

The second is executed by pumping lots of cold air into these huge rooms.

Trust me, you wouldn't want to have to pay the electricity bill for one of these facilities: Experts estimate that the U.S. alone spends roughly $7.4 billion a year cooling data centers.

Now you understand one of the key financial drains with all these server farms sprouting up all over the world.

But here's the thing: With every problem that needs solving, there's also a profit opportunity for the organization that devises the solution.

Enter Iceotope Research and Development Ltd. Their solution: keep computers cool by using a strange gooey liquid.

Don't scoff.  Liquids and sensitive electronic gear usually work together like a baseball and your neighbor's living-room window. But Iceotope has found a way for an alcohol-based chemical to keep all those circuits running cool -without the liquid damaging the complex electronic gear.

To achieve its results, the U.K.-based firm partnered with industry giant 3M Co. (NYSE: MMM). That big-cap leader has sold its Novec Engineered Fluid for at least two decades.

Because it isn't water-based – meaning it doesn't cause oxidation (rust) or other types of corrosion – the substance is often used by the military and aerospace firms as a parts cleaner. It also works great as a fire suppressant in rooms full of electronics because use of a water-based product there could ruin millions of dollars' worth of sensitive equipment.

But using it as a liquid cooling agent for computer centers is indeed a novel use of this substance. As such, I see this as just one more example of how we have entered what I call the "Golden Age of Materials Sciences."

If we're to maintain the rapid pace of innovation we've been experiencing, we have to keep finding new materials that can solve complex problems.

Or come up with unique new twists for already-existing chemicals.

That's why I think Iceotope is really onto something here. The result is a system that offers huge efficiencies.

Really, the stats are off the charts. Consider that Iceotope says its approach lowers data-center-cooling costs by 97%. That's pretty close to getting it down to free.

But that's not all – the firm says its approach lowers overall infrastructure costs for these centers by half and reduces the overall power load by 20%.

And the cooling system is only part of Iceotope's innovative package. There's also the "platform" itself. And it's pretty simple, combining a computer cabinet with a server module.

In turn, those modules can be set up for dedicated computing, or for telecommunications needs.

Iceotope is after two main markets. First, the cabinets can be designed as supercomputers. Those machines are used for such Big Data applications as searching through social networks, looking for the origins of the universe and catching terrorists before they strike.

Second, the boxes tap another major trend – cloud computing. That's because they can be wired into a series of server racks that comprise a full data center. This is a real growth area because hundreds of millions of mobile devices need to access the cloud for data, video and more.

So, Iceotope has great science, access to one of the world's top materials companies, and a couple of major tech trends going for it.

But it's also a private company, meaning it has yet to issue its stock to the public.

But don't worry about that – there are actually four ways to profit from this new field of "liquid-cooled computing."

First, there's 3M. The mega cap firm likely won't get a lot of sales from the Iceotope solution at this point.

But the breakthrough shows the firm can still remain on the leading edge of high tech at a time when materials science is so vital.

For its computer modules, Iceotope is working with Intel Corp. (NasdaqGS: INTC) and its arch rival – Advanced Micro Devices Inc. (NasdaqGS: AMD).

These two chipmakers couldn't be more different. Intel has a market cap of $107 billion, compared to $1.9 billion for AMD. Intel is clearly the more stable of the two firms.

In the past, I have described AMD's stock as a "bottom-feeder's dream." Trading at $2.60 a share, it's a risky play suited for aggressive investors.

Let me close by telling you about one other firm partnering with Iceotope. It's Super Micro Computer Inc. (NasdaqGS: SMCI), a maker of high-performance servers.

With a market cap of about $490 million, Super Micro trades at 10 times forward earnings and just 0.45 times sales at its recent share price of roughly $11.60.

With a consensus target of $15 – about 30% above where Super Micro is trading now – analysts seem to like the shares of this maker of energy-efficient computer servers.

It's impossible for me to predict at this point which of these stocks will have the best performance over the next couple of years.

But this much is certain. Liquid-cooled computing is an exciting new field that could have a dramatic impact on the entire field of computing, an area that touches just about every part of our lives today.

And just as Ray Harroun had no idea how much his invention would change the world that day in Indianapolis, there's no telling what other innovations this new data-farm technology will spawn.

Just know that when those innovations do appear, we'll be here to show you the best ways to profit.

[Editor's Note: It doesn't matter what's "hot" in investing, nobody is better equipped to than Michael to deliver "home run" gains in the tech sector.  And now for a limited time, you can get immediate full access to his Radical Technology Profits model portfolio for just $99.  But that's only a small part of this story. The same deal includes a " test drive" all of our premium services but one. That's $27,500 in research, for just $99! You can go here for the details]

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About the Author

Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.

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  1. Steve | March 23, 2013

    You could also just invest in Asetek, listed in Euroe provides non-proprietary data center liquid cooling, and as Novec is a 3M invention this fluid is not proprietary it can be used in Asetek's solutions as well.

  2. Gary Heckler | March 23, 2013

    This is in regards to the "liquid cooling of super computer servers".
    This is by far not a new technology. I worked for Cray Research on the then fastest super computer in the world, the Cray 1. It is now on display in the museum in Washington D.C. It was cooled by freon which was encircling the computer. The computer was 8ft high built in a circle with a small opening in the circle. The base around it juttede out with bench like tops and concealed the power supplies aqnd the cooling piping. It had an external refrigeration unit of 15 tons capacity. We as techs did all the maintenance ont the total system including the refrigeration system. It was really a neat company to work for and was far ahead of anything of the day. It was later bought out by Semiconductors specialties company after I left the company. You can see though that cooling a computer IS NOT ANYTHING NEW.

  3. Peter Hopton | March 23, 2013

    Michael, many thanks for the well researched article. My name is Peter Hopton and I'm the founder of Iceotope.

    To clarify on the technology and some of the comments – the Cray 2 was cooled by 3M Fluorinert, of which 3M Novec is arguably it's "environmentally aware little brother". But Iceotope's technology is a bit more than dunking electronics in a liquid though.

    Iceotope harness the natural thermal expansivity and low viscosity of Novec and through the application of computational fluid dynamics we establish convective cells – where the fluid moves itself rapidly by natural convection. Essentially we don't need any pumps at the server level, furthermore the natural convection acts as a passive regulator – spreading the dynamic heat load from the IT over a large surface area allowing Iceotope's cabinet level and data centre level coolant pumping to be very, very efficient. A pump is using around 1W of energy to move 500W of heat – compare that just to the fans inside a server which could use as much as 100W of energy to move 500W of heat.

    It's our ambition to eliminate fans and air from the data center completely and this is where we differ from our competitors – because the removal of air implies the removal of vast amounts of infrastructure. Because the Iceotope system has such a good thermal connection to all of the components through the convective cells, it can cooled by warm liquid exclusively (111F warm in, hot out)- eliminating the need for expensive refrigeration OpEx and CapEx.

    It is this innovation that is novel and enabled by modern materials combined with modern mathematical techniques such as CFD. The Iceotope convective cell is broadly protected by granted patents.

    I applaud Steve and the Asetek team for their recent IPO and at a valuation of over 6x revenue it shows the excitement over the potential for the liquid cooling space. We're a little further away from our IPO though, but we always welcome the approach of VCs and potential funders via linkedin or our website.

    • Editor | March 25, 2013

      Thanks for chiming in, Peter! Glad to hear from you about this exciting technology.

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