Shares of Vertiv, a data center hardware and services provider, have risen 175% as of November 11. Last month, Vertiv exceeded investor expectations for the third quarter and raised guidance.
Here are three reasons Vertiv stock could rise further:
- Artificial intelligence growth is boosting data centers’ demand for Vertiv’s offerings;
- Vertiv enjoys a leading share of the market for data center liquid cooling and electric equipment; and
- Analysts are bullish about Vertiv’s prospects.
Vertiv’s Third-Quarter 2024 Performance And Prospects
In October Vertiv Holdings raised its sales forecast for fiscal 2024 and “exceeded expectations for Q3 results,” according to Investing.com. Since then, the company’s shares have risen nearly 12%.
Here are the key numbers:
- Q3 2024 revenue: $2.07 billion — higher by 0.16% than the $1.98 billion consensus, Investing.com noted.
- Q3 2024 adjusted earnings per share: $0.76 — seven cents a share more than the $0.69 consensus, reported Investing.com.
- Q3 2024 adjusted operating margin: 20.1% — 0.2 percentage points ahead of the company’s forecast, Investing.com wrote.
- Q4 2024 revenue forecast: a range between $2.115 billion and $2.165 billion — the midpoint of which is $10 million below the market estimate, noted Investing.com.
- Full year 2024 revenue forecast: a range between $7.78 billion and $7.83 — the midpoint of which is $70 million above analysts’ estimate of $7.73 billion, according to Investing.com.
“Vertiv’s strong performance in the third quarter was driven by robust underlying demand for our critical digital infrastructure products and services, our continued and unrelenting focus on strong operational execution and Vertiv’s unique market position in enabling artificial intelligence and other critical applications for the data center,” Vertiv’s CEO Giordano Albertazzi said in a statement.
AI Boosts Data Center Demand For Vertiv Offerings
AI is driving demand for Vertiv’s products. “There are clear indications of an acceleration in AI development that is truly encouraging, and which is driving demand across our entire AI-enabling portfolio of power, thermal, IT systems, infrastructure solutions and services,” Albertazzi said, according to Investing.com.
While acknowledging investors’ tendency to waver emotionally — between fear and excitement — when it comes to AI, Vertiv sees the digital revolution has having significant potential. “AI is just the next step in that digital revolution,” Vertiv Executive Chairman David Cote told analysts in a conference call. “AI is real. It has just begun. It’s got a long way to go. Data centers are fundamental to all that computing.”
Analysts agree data center growth will help Vertiv. “Vertiv should benefit from growth in the data center market broadly,” BofA Securities analyst Andrew Obin wrote in a September client note featured by Investor’s Business Daily.
In 2023, capital expenditures on data centers went to IT equipment and data center infrastructure — where Vertiv competes. Of the $215 billion spent on data centers, about $161 billion went to servers, networking and data storage, BofA Securities estimated. The other 25% went to construction, electrical, thermal systems, generators and general engineering, IBD reported.
In 2024 and 2025, Gartner projects spending on data center systems to grow faster than overall IT spending. More specifically, the firm forecasts a 34% rise in 2024 data center systems spending to $318 billion — with 15.5% growth to $367 billion in 2025, “outpacing the 9.3% rise that Gartner projects for overall global IT spending,” IBD reported.
Vertiv’s Leading Share of Data Center Infrastructure Market
Vertiv is a leader in data center infrastructure. “We estimate they are the largest provider of thermal equipment and the second-largest vendor of electrical equipment to data centers globally,” noted BofA Securities.
Vertiv’s immersive cooling systems and other products for data centers help solve the specific problems of hosting generative AI applications. The level of densely packed servers doing calculations all day long boosts the amount of heat that data centers must remove to keep the equipment from overheating, according to a May 2024 Forbes post.
Liquid cooling — which circulates water or other coolants through heat exchangers to absorb the heat generated by computer components — is more efficient than fans or air conditioning, noted my book, Brain Rush.
Vertiv’s partnership with Nvidia includes a “detailed reference design for power and cooling infrastructure” for the chip designer’s Blackwell AI graphics processing unit. “New data centers are built for accelerated computing and generative AI with architectures that are significantly more complex than those for general-purpose computing,” Nvidia CEO Jensen Huang said in an October 15 news release.
Vertiv’s “world-class cooling and power technologies” can enable Nvidia to achieve its vision of reinventing computing,” Huang added.
Analysts Are Optimistic About Vertiv’s Growth Potential
Wall Street analysts — 16 of whom unanimously rated the stock a buy, according to FactSet — see Vertiv as a way to play rising spending on data centers.
One analyst expects the company to benefit from a shift from air to liquid-cooling. Vertiv “offers a comprehensive end-to-end portfolio of liquid cooling solutions,” Evercore ISI analyst Amit Daryanani wrote to clients in October. “We believe Vertiv is best positioned to benefit from the liquid cooling opportunity,” he added.
Another analyst is similarly bullish. “Continued strength in data center demand, combined with rising rack heat densities, positions VRT as our favorite way to play secular growth in AI data centers,” Jefferies analyst Saree Boroditsky wrote in a November 5 client note featured in an IBD report.
On November 11, Daryanani raised his price target for Vertiv to $150, according to TipRanks.
If Vertiv keeps beating expectations and raising guidance, investors could be rewarded.