Vertiv Holdings Co (VRT): A Bull Case Theory
We came across a bullish thesis on Vertiv Holdings Co (VRT) on Twitter by Radnor Capital. In this article, we will summarize the bulls' thesis on VRT. Vertiv Holdings Co's share was trading at $111.84 as of Oct 11. VRT's trailing and forward P/E were 87.38 and 36.50 according to Yahoo Finance.
An exterior view of a busy data centre, showing the scale and workflows of the company.
Vertiv ($VRT) is a global leader in providing critical digital infrastructure solutions, specializing in power, thermal, and IT management products and services for data centers, communication networks, and commercial and industrial facilities. The company went public via a SPAC in 2020, with the backing of Dave Cote, the former CEO of Honeywell, lending credibility to its management and strategic direction.
Vertiv generates revenue primarily by supplying power and cooling infrastructure to data centers. Approximately 75% of its business is derived from products that ensure efficient power and thermal management, while the remaining 25% comes from services such as installation, maintenance, and remote monitoring. With data centers transitioning from CPU-based servers to AI-focused GPU-powered servers, Vertiv's cooling solutions are becoming increasingly crucial, as AI servers require significantly more power and cooling capacity than traditional servers. Vertiv is poised to benefit from the growing demand for both air and liquid cooling as AI data centers expand globally.
Investing in Vertiv offers exposure to the accelerating growth in AI and cloud data center capital expenditures. Microsoft, Google, and other hyper scalers have shown continued optimism about the future of AI, underscoring long-term demand for power and cooling infrastructure. Vertiv's record order backlog, currently around $5 billion, and plans to double its production capacity from 2023 to 2025 reflect the durability of this demand. The shift toward liquid cooling in AI data centers presents a new growth avenue, with industry projections suggesting a rapid transition over the coming years.
Financially, Vertiv has demonstrated strong growth, with revenues increasing by more than 20% in 2023, driven primarily by U.S. demand. The company's management expects 8-11% sales growth and operating margins between 16.5-16.9% in 2024, with incremental margins moving toward 35%. Vertiv's valuation, trading at around 20x EV/operating profit, remains reasonable relative to peers like Eaton and Amphenol. With a healthy balance sheet, strong cash generation, and strategic partnerships with Nvidia and Intel, Vertiv is positioned to capitalize on continued AI and data center expansion.
Vertiv Holdings Co is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 92 hedge fund portfolios held VRT at the end of the second quarter which was 85 in the previous quarter. While we acknowledge the risk and potential of VRT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VRT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
