Bull of the Day: Vertiv Holdings Co (VRT)

Vertiv Holdings Co (VRT) stock has doubled Nvidia over the last 12 months, driven by Wall Street’s insatiable appetite for AI-boosted growth.

Vertiv is not as flashy as Nvidia and other artificial intelligence darlings. Yet Vertiv’s portfolio of power, cooling, and IT infrastructure solutions and services could grow steadily for decades because AI and other technological advancements require practically endless, always-available data.

Vertiv’s job is to keep the computing power needed to drive the modern, digitally connected economy running as smoothly as possible around the clock.

VRT provides investors the opportunity to benefit from the AI-super cycle without picking artificial intelligence winners since Vertiv is a high-tech picks and shovels-type AI investment.

VRT’s Pitch: The World Runs on Big Data

The rapid rise of cloud computing, AI, cryptocurrencies, and cutting-edge technologies yet to come all require an increasingly enormous amount of data and energy. Vertiv’s pitch to potential customers and Wall Street is straightforward and compelling: “The world depends on the data we power and cool.”

Vertiv’s portfolio of power, cooling, and IT infrastructure solutions and services operates across data centers, communication networks, commercial and industrial facilities, and beyond. Vertiv’s product categories include critical power, thermal management, racks & enclosures, and monitoring & management.

The Ohio-based firm's services range from DC power and electrical reliability to safety and compliance. Vertiv’s clients include enterprises and small and medium-sized businesses across healthcare, telecom, tech, retail, education, and beyond.  

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Vertiv expects the push for greater energy efficiency across data centers will boost its liquid cooling technologies since more traditional air-cooling systems cannot as effectively cool new high-density racks jam-packed with CPUs and GPUs.

Vertiv is expanding inside the pre-fabricated/modular data industry, as data centers proliferate globally. Meanwhile, its micro data centers offer all-in-one solutions for power, cooling, monitoring, and racks.

VRT in December agreed to acquire liquid cooling infrastructure solutions firm CoolTera, bolstering its ability to support the deployment of AI at scale. Plus, Vertiv partnered with AI chip superstar Nvidia (NVDA) to help solve future data center efficiency and cooling challenges.

The firm’s nearly two dozen global manufacturing plants are helping it ramp up production. Vertiv said last year that its “existing footprint was built with the idea that future growth would need to be accommodated.”

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Growth Outlook  

Vertiv, which went public via a SPAC in early 2020, posted 14% revenue growth during its first two full years. VRT grew its revenue by 21% in fiscal 2023.

The company's organic orders climbed by 23% in Q4 and it closed the year with a record backlog of $5.5 billion. CEO Giordano Albertazzi sees “tremendous opportunity ahead as the data center needs of AI drive additional market demand.”

Vertiv is projected to post 11% revenue growth in fiscal 2024 and nearly 10% higher sales in FY25 to climb from $6.86 billion last year to $8.34 billion next year.

VRT’s adjusted earnings are projected to soar by 33% and 24%, respectively. Vertiv is also boosting its adjusted free cash flow, which helps support the acceleration of its long-term capital deployment framework.

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Vertiv’s post-Q4 release EPS revisions help it land a Zacks Rank #1 (Strong Buy) and mark the continuation of its improving bottom line outlook over the last year.

VRT’s FY24 consensus EPS estimate has jumped 80% over the last year from $1.31 a share to its current $2.35 per share, while its FY25 figure has soared by 112% ($1.38 to $2.92 per share).

Performance, Technical Levels & Valuation

Vertiv shares have surged by 325% during the last three years to outpace the S&P 500’s 31% and the Zacks Technology sector’s 35%. VRT has skyrocketed roughly 530% during the last 12 months to double Nvidia and blow away Tech 48%.

Vertiv trades solidly above its 21-day and 50-day moving averages, driven by a 72% YTD climb. VRT might be overheated in terms of RSI levels, and some investors might want to wait for a pullback.

That said, playing the market-timing game is not easy and can prevent long-term investors from buying great stocks at prices that could look like steals down the road even if they prove a tad pricey in the near term.

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Image Source: Zacks Investment Research

Vertiv trades at a discount to its Computers - IT Services industry at 33.2X forward 12-month earnings vs. 36.1X. That is solid bang for your buck since VRT has climbed 325% in the last three years vs. its industry’s 12% run.

Vertiv’s PEG ratio, which factors in its longer-term earnings growth outlook, sits at 1.2. This represents a 60% discount vs. its industry, 36% value vs. the Zacks Tech sector, and an 8% discount to Nvidia.

Bottom Line

Wall Street is bullish on Vertiv, with nine of the 10 brokerage recommendations Zacks has at “Strong Buys.” VRT appears worth considering as a way to gain exposure to the never-ending growth of data and, of course, the AI age.  

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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