Shares of cooling infrastructure play Vertiv (NASDAQ:VRT | VRT Price Prediction) have been that much harder to hang onto since the shares peaked out back in May. Despite the pick-up in turbulence and the plunge into bear market territory, a number of analysts have not soured on the name. The AI data center buildout hasn’t gone anywhere; if anything, things could get even more intense as companies look to get AI compute where it needs to be to roll out the red carpet for that agentic AI blast-off.
While chatbots are getting more efficient over time, the agents we keep hearing about that could run around the clock are going to require worlds more compute. And, with that, there just aren’t enough data centers to feed what could be one of the most transformative shifts we’ve seen in this AI revolution.
Vertiv’s secured its front-row seat to the AI data center buildout. It’s time to sit back and enjoy the show
As more data center projects get the green light, a company like Vertiv, which supplies critical cooling solutions, is going to win more business. It seems like such an obvious bull point, but it’s one that numerous analysts seem to think is underpriced in the shares, especially after that latest dip into a bear market.
Baird started its coverage of the $117 billion firm with a buy and a $370.00 price target, which entails a gain of just north of 21% from Tuesday’s close. Indeed, shares of Vertiv bounced back furiously on Tuesday, gaining 4.4% on a day that saw much of the battered semiconductor-tied plays bounce. With a slate of impressive and red-hot AI hardware launching in the second half, the need for cooling solutions could kick things up a few more notches.
What’s most interesting, at least in my view, is how blistering-hot next-generation hardware (think Vera Rubin and beyond) racks stand to be. Liquid cooling is quickly becoming the new default, and, for many, Vertiv is going to be that number-one provider of liquid-cooling infrastructure that flows into the data center and into each rack.
Vertiv’s tailwinds could become even more pronounced
It’s not just liquid innovation that makes Vertiv such a stellar firm to hang onto as the AI data center buildout continues on. Heat rejection is another key piece of the puzzle, and with the ThermoKey acquisition in the books, the company can now dissipate the heat in a way that few other firms can.
Of course, liquid cooling solutions might seem unexciting at best, commoditized at worst. But at the same time, there’s a lot of complexity in designing a thermal management system that scales. These data centers are getting bigger and bigger, and firms are going to need the expertise to get the job done well the first time.
Given the stakes when it comes to thermal management and the costs that accompany thermal downtime, perhaps Vertiv is the essential service provider that deserves its pricing power.
Any way you look at it, Vertiv has way too much business coming in. As the more than $15 billion backlog swells further (order velocity is off the charts, up 252% in the fourth quarter) and the firm looks to really get going, I wouldn’t be so quick to time a peak in the name, as it may very well be a bet against the data center buildout as we know it.
As the DRAM shortage gets corrected in the coming years and other chokepoints are addressed, my guess is that buildouts could accelerate further. For a company like Vertiv, that’s some serious growth that, believe it or not, might not be priced in just yet.
Vertiv looks expensive, but why it might be worth buying anyway
With shares going for 47.2 times forward price-to-earnings (P/E), it feels like the premium multiple has already reflected the massive growth. Any way you look at it, Vertiv is the cool leader with a flywheel that looks like it could keep spinning as the AI supercycle looks to extend for who knows how long.
Perhaps Loop Capital’s Ananda Baruah is right on the money when they say Vertiv is a “tech company” that just so happens to sell industrial gear. If the firm can add to its moat in this explosive phase of the buildout, my guess is that shares aren’t yet pricey enough.
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