Shares of fast-rising liquid cooling star Vertiv (NASDAQ:VRT | VRT Price Prediction) have been sharply rallying in recent weeks shortly after it seemed like the AI data center trade as we knew it was due for a vicious implosion.
As it turned out, it was just another run-of-the-mill correction and one that led to a swift V-shaped bounce. Unless you levered up and the margin calls rang the phone off the hook, the latest AI dip was more of a correction and less of a “beginning of the end,” so to speak.
Of course, if you rode Vertiv shares all the way from peak to trough, you faced a rapid drop of more than 40%. That’s more than just a correction, but when it comes to the high-flying world of AI data center plays, that’s the price to play in the hyper-growth heroes. When it comes to Vertiv, sell-side analysts aren’t ready to recommend taking profits off the table, at least not quite yet.
It’s hard to believe, but the firm, which gained around 280% in two years, is now a $111 billion company. As the firm keeps next-generation GPUs cool while the number of ambitious 1-gigawatt (and beyond) AI data centers goes up, the demand for top-of-the-line cooling infrastructure, I think, might just lead to even more growth surprises for the likes of Vertiv.
It’s the liquid cooling play
Undoubtedly, Vertiv stock as an AI buildout play is really no secret anymore. And at 65.2 times trailing price-to-earnings (P/E), it feels like the easy money has been made, even as shares look to extend recent strength brought on by a decent, but not jaw-dropping, quarterly earnings beat, which initially didn’t excite as much.
In any case, liquid cooling is critical AI infrastructure now. And the bull thesis only stands to get stronger as hot AI clusters pave the way for greater thermal density that brings forth the need for the very best heat-rejection infrastructure.
Indeed, I think we’ve gone past the era where data centers can rely on air cooling to keep things from boiling over. As the AI buildout intensifies and CapEx of the hyperscalers goes into overdrive, my guess is that Vertiv could face re-accelerating revenues alongside an enviable operating margin profile.
Vertiv can keep winning as the AI buildout intensifies
For the second half of the year, revenues are already expected to crank things up a notch. Beyond that, though, is where the real surprises could lie from a firm that’s sitting front-row center to this AI data center buildout. Any way you look at it, it’s just too risky and expensive not to pay Vertiv for its services, especially as the chokepoint shifts from semiconductors to the physical “plumbing.”
As the backlog swells and other bottlenecks are alleviated, there’s every reason to believe that the AI buildout will accelerate further. And, with that, Vertiv’s backlog could continue to rise from here. Of course, the hyperscalers might be the biggest needle-movers, but, in my view, that’s certainly not a bad thing. We know that the mega-cap tech titans are good for the money and, most importantly, they’ve signaled that they’re ready to spend even more.
With the sell-side crowd staying predominantly bullish on the high-flyer, perhaps it’s time to give Vertiv every bit of respect that the semi plays have been getting these days. Morgan Stanley (NYSE:MS) analyst Chris Snyder sees shares gaining to $350 per share, thanks in part to its significant data center exposure and impressive backlog.
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