VRT: Top AI Pick after Energy Stocks. Buy ?
The rapid rise of generative AI has made chipmaker $NVIDIA Corp(NVDA)$ a household name.
Lately, growing investment in underlying infrastructure to power AI data centers has also provided a boost to more under-the-radar stocks, led by $Vertiv Holdings LLC(VRT)$.
VRT share price as of Fri, 8 Nov 2024
YTD, Vertiv stock has surged by +175.53% (see above) and is up more than +780% since the start of 2023, as of 8 Nov 2024. (see above)
Gains that have come as tech giants like $Amazon.com(AMZN)$, $Microsoft(MSFT)$, $Alphabet(GOOG)$ and Meta Platform (META)$ - pledged to spend billions to build data centers that can provide computing power for artificial intelligence applications.
Vertiv, in turn, provides the equipment that powers and cools those data centers.
Vertiv's recent Q3 2024 earnings beat estimates with a +46% increase in earnings and +19% revenue growth.
On a conference call following the report, Executive Chairman David Cote acknowledged that investors often "oscillate between fear & excitement" about the AI opportunity.
His view is - the world is still only in the early stages of Digital revolution.
He also mentioned the followings:
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AI is just the next step in that Digital revolution.
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AI is real. It has just begun, and it's got a long way to go.
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Data centers are fundamental to all that computing.
Data Center Infrastructure, Investment.
Vertiv offers (1) power, (2) cooling & IT infrastructure solutions and (3) services focused on data centers.
Wall Street analysts like Vertiv as a way to play the rising spending on data centers that power both AI and cloud computing.
According to FactSet, Vertiv stock is unanimously rated a “Buy” by the 16 analysts tracking the company.
Bank of America, Security analyst, Andrew Obin wrote:
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Vertiv should benefit from growth in the data center market broadly,
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We estimate they are the largest provider of thermal equipment and the 2nd largest vendor of electrical equipment to data centers globally.
Bank of America - Securities estimated:
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In 2024, capital expenditures (Capex) on data centers reached $215 billion globally. (see above)
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About 75% of that spending went to IT equipment such as servers, networking and data storage.
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Remaining 25%, is spent on data center infrastructure, including construction, electrical, thermal systems, generators and general engineering.
Research firm Gartner projects:
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In 2024, spending on data center systems will reach $318 billion, a +34% YoY increase from a year earlier. (see above)
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For 2025, data center spendings will grow by another +15.5% to $367 billion, outpacing the 9.3% rise that Gartner projects for overall global IT spending.
Nvidia Partnership
Rising demand has helped Vertiv.
Analysts project the company's 2024 adjusted earnings will rise +49% on a per-share basis, to $2.64, while sales will increase by +14% to $7.8 billion. (see above)
In a recent interview, Vertiv, CEO, Giordan Albertazzi mentioned:
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The digital infrastructure is a very essential element for data centers.
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The power and thermal really keeps the thing alive and working.
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He views the current data center growth as a "long-term, secular trend".
The company is homing in on its AI opportunity.
Just last month, Vertiv revealed a detailed reference design for power and cooling infrastructure for Nvidia's latest Blackwell AI graphics processing unit.
On 15 Oct 2024, Nvidia, CEO, Jensen Huang added:
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New data centers [with architectures that are more complex than those for general-purpose computing], are built for accelerated computing and generative AI.
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With Vertiv's world-class cooling and power technologies, Nvidia can realize their vision to reinvent computing and build a new industry of AI factories that produce digital intelligence to benefit every company and industry."
Evercore Group, Senior MD & Fundamental research analyst, Amit Daryanani:
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Sees a big opportunity for Vertiv as demands for AI computing shift more data centers from using traditional air-cooling to liquid-cooling systems.
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Vertiv offers a comprehensive end-to-end portfolio of liquid cooling solutions.
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They believe Vertiv is best positioned to benefit from the liquid cooling opportunity.
Vertiv’s History & more...
Vertiv has a history dating back to the 1960s, when it was founded as the Liebert Corp.
It first manufactured air conditioning units for computer rooms.
In 1987, it was acquired by Emerson Electric (EMR).
By 2015, Emerson spun off its data center and communications networks focused division - Network Power, to create Vertiv.
In February 2020, Vertiv went public through a merger with a SPAC (special purpose acquisition company)
Since then, shares have advanced more than +900%, with those gains weighted heavily toward the past two years.
A big question amid the red-hot AI run is whether tech giants and other industry players can sustain the big spending.
Tech giants like Amazon, Microsoft and Meta are upping their capital expenditures plans related to AI, but that spending is coming under greater scrutiny from investors.
Risk Factor.
In Vertiv’s 2023 annual report, it has acknowledged risk factors facing the company:
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Reliant on continued growth of its customers' networks, in particular data center and communication networks.
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Faces still competition from large players such as Schneider Electric and Eaton Corp. (ETN).
Technical Analysis.
According to MarketSurge:
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On 3 Oct 2024, Vertiv broke out from a cup-with-handle base. (see above)
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Hitting its buy point of $103.69 per share.
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In recent trading days, Vertiv has rallied along with the broader stock market following Donald Trump's election to a 2nd presidential term.
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A +17.96% gain for week ending 08 Nov 2024, has the stock approaching a profit-taking zone from its October breakout.
Q3 2024 Earnings.
On 23 Oct 2024, Vertiv released its Q3 earnings report, after market closed for the day.
Market had a “mixed” reaction to Vertiv's earnings results.
As a results, shares fell by -3.7% the next day, despite “bullish” commentary from analysts.
Q3 2024 Earnings.
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Earnings per share (Non GAAP) adjusted (EPS) : came in at $0.76 vs Wall Street expectations of $0.69 per share.
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Revenue: came in at $2.07 billion, ahead of FactSet anslysts estimates of $1.98 billion. (see above)
Perhaps it was Vertiv’s Q4 2024 outlook that spooked investors. VRT’s guidance for Q4 2024 revenue was $2.14 billion, that was marginally lower than the $2.16 billion estimates.
Investor’s Event.
Vertiv hosted “An investor event and presentation” on Mon, 18 Nov 2024.
The management team shared updates about strategic direction, market trends, innovation, and operational initiatives.
These could be the drivers for the next potential catalyst to see Vertiv stock price scale to new highs.
Meanwhile, analysts remain bullish:
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Jeffries’ analyst Saree Boroditsky commented on 5 Nov 2024 - continued strength in data center demand, combined with rising rack heat densities, positions VRT as Jeffries’ favorite way to play secular growth in AI data.
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If you google, you will find that there is consensus on VRT’s potentials. (see above)
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With the S&P 500’s 2025 earnings projected to grow at +12.2% and AI cast in stone (of sort) as the next phase in the IT world, many believe VRT is one company that is expected to outpace S&P 500’s growth.
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It offers something for every stage of a data center’s lifecycle.
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Its modular offerings allow companies to scale up capacity quickly, coupled with its cooling solutions and management & monitoring tools.
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Earnings are expected to grow +30.9% next year.
Overall, Vertiv ranks #1 in “electrical and power equipment group” tracked by Wall Street analyst. Do you buy it?
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